0
International Business Environment
MB IB 01
1/29/2015 1Kartikeya Singh
Unit I – (10 sessions)
I. International Business and Environment:
An interface;
II. World Trade in Goods and Services – Ma...
International Business and Environment
“A domestic transaction is the
selling of items produced in
the same country.”
“An ...
 IB field is concerned with the issues
facing international companies and
governments in dealing with all types
of cross ...
Benefits of IB
Benefits for International Business
• Access to markets
• Cheaper labour
• Increased quality of goods
• Inc...
World Trade in Goods and Services – Major
trends and Developments;
• As trade flows have generally grown faster than
incom...
World Trade in Goods and Services – Major trends
and Developments;
• The shifting global balance is also visible in the
ch...
World Trade in Goods and Services – Major
trends and Developments;
• Removal of Tariff and Non-Tariff barriers
• Transfer ...
World Trade in Goods and Services – Major trends
and Developments;
1/29/2015 Kartikeya Singh 9
http://www.wto.org/english/...
Development
Time Economic Political Technological
1940 •GATT 1947
•Bretton Woods
System – IMF and
World Bank 1945
•United ...
Development
Time Economic Political Technological
1960 •Foundation of OPEC-Oil
producing and Exporting
Countries – 1960
•K...
Development
Time Economic Political Technological
1990s •Indian Economic
reforms 1991
•NAFTA – 1994
•Asian Financial
Crisi...
Framework for Understanding International
Business Environment
Micro Environment
• Customer
• Competitor
• Suppliers
• Mar...
Legal Framework of International Business -
• Ex -----
• Media advertising is not permitted in Libya
• European countries ...
Legal Framework of International Business - Nature and Complexities;
code and common laws and their implications to Busine...
Sources of International Law -
• The main sources of international
commercial law are the laws of
individual countries, th...
Sources of International Law
• UNO
• WTO
• Import policy
• Taxes on Import
• Import control
– The Department of Commerce, ...
International Contract
• The basis for any
international
agreement is the
contract between
parties. International
contract...
Financial Instruments Used in International Contracts
• Bill of exchange
– sight bill
– time bill
• Letter of credit
(Revo...
International Contract
I. Payment clauses
II. Choice of Language Clause
III. Force Majeure Clause
IV. Forum Selection and ...
International Sales Agreements
Content of the pro-forma
Parties to the contract
 Write the exact references of contractin...
General Condition of Sales
CLAUSES
Parties to the contract
 Identifying parties to the contract (buyer/seller) : Name of ...
General Condition of Sales
1/29/2015 Kartikeya Singh 23
CLAUSES
Modalities of transport
 Specifying the mode of transport...
Unit –II
( 8 sessions)
1/29/2015 Kartikeya Singh 24
Unit II
1. Global Trading Environment:
2. Liberalization of World Trade. FDI and
their Impact on the Economy,
3. Multinati...
1.Global Trading Environment
• Economic Integration is proceeding across the
world at an unprecedented pace.
• Globalizati...
1.Global Trading Environment
World 1850-1913 1913-1950 1950-73 1974-2007
Population
Growth
0.8 1.7 1.9 1.6
GDP Growth 2.1 ...
1.Global Trading Environment
Value
Annual
Percentage
2007(Billion Dollars)
2007(annual
percentage change)
Merchandise 1357...
1.Global Trading Environment
• Regional Integration Agreement and
Trade(RIAs)
– Regional Trading Blocks – Free trade
zone....
1.Global Trading Environment
• Economic Effects of RIAs
– Try to eliminate preferential trade
arrangement
– Trade Creation...
Round Participants Key Achievements
1947 23 Tariff reduction
1949 13 Tariff reduction
1951 37 Tariff reduction
1956 26 Tar...
Foreign Direct Investment
• Why is FDI increasing?
• Why do firms choose FDI over exporting or
licensing to enter a foreig...
FDI
• Foreign direct investment (FDI)
happens when a firm invests
directly in facilities in a foreign
country
• A firm tha...
FDI
• Involves ownership of entity abroad for
– production
– Marketing/service
– R&D
– Raw materials or other resource acc...
FDI
• FDI forms
– Purchase of existing assets
• Quick entry, local market know-how, local
financing may be possible, elimi...
FDI
• FDI
– FDI - 100% ownership
– FDI < 100% ownership, International Joint
Venture
• Majority, Equal Share, Minority Par...
Franchising Licensing
Governed by: Securities law Contract law
Registration: Required Not required
Territorial rights: Off...
Why FDI?
• FDI over exporting
– High transportation costs, trade
barriers
• FDI over licensing or franchising
– Need to re...
Multinational Organization and its
Impact
• A multinational corporation (MNC)
or multinational enterprise (MNE) is
a corpo...
Multinational Organization and its
Impact
Advantages
• Improving the balance
of payments
• Providing employment
• Source o...
Acquisition
• Acquisition refers to the process
of acquiring a company at a
price called the acquisition price
or acquisit...
Merger
• The combining of two or more
companies, generally by offering the
stockholders of one company
securities in the a...
Joint Venture
• Joint venture, commonly known as JV, is a
contractual arrangement between two or more
parties who agree to...
Amalgamation
• Amalgamation is an arrangement where
two or more companies consolidate their
business to form a new firm, o...
Merger vs Acquisition
Merger Acquisition
Merger is considered to be a process
when two or more companies come
together to ...
• Tata Steel’s mega takeover of European steel major Corus for $12.2 billion. The biggest
ever for an Indian company. This...
5. Political and Legal Impact of Multinational
• They integrate the economy
• Try to give a unified platform for the trade...
SWOT Analysis of MNC
Strengths
• Low Cost
• Well Developed Infrastructure
Weakness
• Location is often very distant
• Lack...
6. Strategies for Dealing with Multinationals
1/29/2015 Kartikeya Singh 49
1/29/2015 Kartikeya Singh 50
EXHIBIT 6.1 MULTINATIONAL STRATEGY CONTENT
Content Transnational International Multidomestic ...
7. Technology Transfer – Importance and Types,
• … is composed of a
systematically developed set of
information, skills, a...
7. Technology Transfer – Importance and Types,
• Product-embodied technologies are
transferred by transferring the physica...
7. Technology Transfer – Importance and Types,
• Factors Influencing Technology
Transfer
– Similar language
– Common ances...
7. Technology Transfer – Importance and Types,
• Factors Causing Difficulty in Technology
Transfer.
– Differences in strat...
End of Unit II
1/29/2015 Kartikeya Singh 55
Unit III
(8 Sessions)
1/29/2015 Kartikeya Singh 56
Unit III
1. International Financial Environment:
a) Foreign Investment – Types and
Flows;
2. Monetary System-
a) Exchange ...
1.International Financial Environment:
a). Foreign Investment – Types and Flows;
• New market access is also another major...
1.International Financial Environment:
a). Foreign Investment – Types and Flows;
– Resources: Availability and therefore e...
1.International Financial Environment:
a). Foreign Investment – Types and Flows;
• Why is FDI important for any considerat...
1.International Financial Environment:
a). Foreign Investment – Types and Flows;
• Licensing and technology transfer.
• Re...
1.International Financial Environment:
a). Foreign Investment – Types and Flows;
• Significance of Foreign Investment
• Fo...
1.International Financial Environment:
a). Foreign Investment – Types and Flows;
• Helps increase the investment level and...
1.International Financial Environment:
a). Foreign Investment – Types and Flows;
• Criticism against Foreign Capital
• For...
2. Monetary System-
International monetary systems over two centuries
Date System Reserve assets Leaders
1803–1873 Bimetal...
2. Monetary System-
1/29/2015 Kartikeya Singh 66
Competing ideas for the next international monetary system
System Reserve...
2. Monetary System-
a. Exchange Rate Mechanism and Arrangements
 What is Exchange Rate ?
 Exchange Rate is a rate at whi...
History
• In 1821-1914Most of the World's currencies were redeemable into gold. (i.e. you could
"cash in" your paper notes...
Three main categories of exchange
rate regimes
1. Flexible Exchange Rate Systems
2. Managed Floating
3. Fixed Exchange-rat...
Flexible Exchange Rate Systems
• The value of the currency is determined by the
market, ex. by the interactions of thousan...
Managed Floating
• A floating exchange rate in which a government intervenes
at some frequency to change the direction of ...
Fixed Exchange-rate System
• A system whereby the exchange rates of the
member countries were fixed against the U.S.
dolla...
De Facto Classification of Exchange Rate Regimes
and Monetary Policy Frameworks (IMF, 2008)
1. Exchange Arrangements with ...
Exchange Arrangements with No Separate
Legal Tender
• The currency of another country
circulates as the sole legal tender
...
Currency Board Arrangements
• Based on an explicit legislative commitment
to exchange domestic currency for a
specified fo...
Other Conventional Fixed Peg Arrangements
• The country (formally or de facto) pegs its currency at a fixed rate to
anothe...
Pegged Exchange Rates within Horizontal Bands
• The value of the currency is maintained
within certain margins of fluctuat...
Crawling Pegs
• The currency is adjusted periodically in small
amounts at a fixed rate or in response to changes
in select...
Exchange Rates within Crawling Bands
• The currency is maintained within certain fluctuation
margins of at least ±1 percen...
Managed Floating with No Predetermined Path for
the Exchange Rate
• The monetary authority attempts to
influence the excha...
Independently Floating
The exchange rate is market-determined,
with any official foreign exchange
market intervention aime...
Movements in Foreign Exchange Rates and Impact on Trade
and Investment Flows, Global Capital Markets
• Foreign exchange tr...
•End of Unit
III
1/29/2015 Kartikeya Singh 83
Syllabus Unit III
• International Economic Institutions:
– IMF,
– World Bank,
– MIGA,
– UNCTAD and
– WTO;
– ATC,
– GSP and...
a.IMF
• The International Monetary Fund (IMF)
is an international organization that
was initiated in 1944 at the Breton
Wo...
a.IMF
• Promote international monetary cooperation through a
permanent institution
• Provides the machinery for consultati...
a.IMF
• The Functions of the IMF
a) Surveillance (like a doctor)
– Gathering data and assessing economic
policies of count...
a.IMF
a) Surveillance
• Surveillance over Members’ Economic Policies
• countries agree to pursue economic policies that
ar...
a.IMF
b) Technical Assistance
• Strengthening human skills and
institutional capacity of countries
• Helps members in stre...
a.IMF
c) Financial Assistance (like a banker)
• Lending to countries to support reforms
• Improving financial sector surve...
Organization
a.IMF
Organization of IMF
• The Board of Governors, the highest decision-
making body of the IMF, consists of one
governor...
a.IMF
Quotas & subscriptions
• Quota subscriptions generate most of
the IMF's financial resources.
• Each member country o...
• A new country is assigned an initial quota in the same
range as the quotas of existing members
• The quota formula is a ...
a.IMF
Quotas & subscriptions
• A new country is assigned an initial quota in the
same range as the quotas of existing memb...
a.IMF
Special Drawing Rights
• The SDR is an international reserve
asset, created by the IMF in 1969 to
supplement its mem...
a.IMF
Special Drawing Rights
• The value of the SDR was initially defined as
equivalent to 0.888671 grams of fine gold.
• ...
The World Bank
• IBRD & IDA
: Working
for a World
Free of
Poverty
Bretton Woods
• In response to post-war
reconstruction and to discuss the
future of international economic
cooperation
• I...
The World Bank
• The Bank’s initial goal was to assist in the
reconstruction of post-war Europe
• Now, the Bank makes deve...
The World Bank Group
1. International Bank for Reconstruction and Development
(IBRD)
– Est. 1946, “aims to reduce poverty ...
Structure of the World Bank
• Headquartered in Washington D.C.
• Over 100 offices all over the world
• 185 member countrie...
Board of Governors
• Made of up representatives from
member countries
– Typically, the representatives are
ministers of fi...
Board of Directors
• 24 members of the Board (5 from
the largest shareholders, 19 to cover
the remaining geography)
• Pres...
1. Increasing Political
Accountability
• Political accountability refers to the constraints
placed on the behavior of publ...
2. Strengthening Civil Society
Participation
• As stakeholders in good governance and
institutions mediating between the s...
3. Creating a Competitive Private
Sector
• The degree to which powerful elites influence
decisions
and policy-making of th...
4. Institutional Restraints on
Power
• The institutional design of the state can
be an important mechanism in
checking cor...
5. Improving Public Sector
Management
• The fifth building block of an anti-corruption strategy
consists of reforms in the...
The Wolfowitz Scandal
• In 2005, Paul Wolfowitz was appointed
by the Bush administration to head the
World Bank Group.
• “...
What’s Next for the World Bank?
Millennium Development Goals
Targets and Goals set for 2015
1. Reducing Poverty and Hunger—global poverty is
projected to ...
Millennium Development Goals
5. Caring for Mothers—reduce the maternal mortality
rate.
6. Combating Diseases—such as AIDS/...
The International Monetary Fund and the World Bank at a Glance
•International Monetary Fund
oversees the international mon...
1.c.MIGA
• The Multilateral Investment Guarantee
Agency (MIGA) is an international
financial institution which offers poli...
Governance
• MIGA is governed by its Council of Governors which
represents its member countries.
• The Council of Governor...
Membership
• MIGA is owned by its 179 member governments,
consisting of 152 developing and 25 industrialized
countries.
• ...
Investment guarantees
• MIGA offers insurance to cover five
types of non-commercial risks:
– Currency inconvertibility and...
UNCTAD(United Nations Conference on Trade and
Development)
• The United Nations Conference on Trade and
Development (UNCTA...
UNCTAD(United Nations Conference on Trade and
Development)
• Acronyms UNCTAD
• Established1964
• Headquarters
Geneva, Swit...
UNCTAD(United Nations Conference on Trade and
Development)
• The primary objective of the UNCTAD is to formulate
policies ...
UNCTAD
• Currently, UNCTAD has 194 member
states and is headquartered
in Geneva, Switzerland.
• UNCTAD has 400 staff membe...
GATT – General agreement on Tariff and Trade.
• The prolonged recession before
the World war II in the west was
due to the...
GATT – General agreement on
Tariff and Trade.
• The birth of GATT
• 30th October 1947, the General
Agreement of Tariffs an...
GATT – General agreement on
Tariff and Trade.
• Third Round at Torquay U K
• The contracting parties exchanged
some 8700 c...
GATT – General agreement on
Tariff and Trade.
• Short term arrangement
• Covering cotton textile(Exception)19 6 1
• Kenned...
GATT – General agreement on
Tariff and Trade.
• The Tokyo round, Seventh round
• Comprehensive body covering
tariff and no...
GATT – General agreement on
Tariff and Trade.
• Successful conclusion of the
Uruguay round
• 15th December 1993. Geneva,
S...
URUGUAY ROUND AND ARTHUR
DUNKEL PROPOSAL
1/29/2015 Kartikeya Singh
Uruguay Round Package
• The draft proposals proposed by Arthur
Dunkel in the Uruguay Round of GATT
include
1. Market Acces...
Uruguay Round Package – 1.Market
Access
– Arthur Dunkel suggested that the Government
control in marketing activities and ...
Uruguay Round Package – 2.
Agriculture
 Member Government are suggested to reduce the
subsidy on fertilizers, seeds and o...
Uruguay Round Package – 2.
Agriculture
1/29/2015 Kartikeya Singh
Amber box
Blue box
Green box
Total Aggregate Measurement ...
Uruguay Round Package - 3. TRIPs Trade
Related Intellectual Property Rights
• Dunkel proposal regarding trade
intellectual...
Uruguay Round Package – 4. TRIMS - Trade
Related Investment Measures
– Abolition of Restrictions imposed on foreign
capita...
Uruguay Round Package – 5.
Trade in Services.
• Trade in services like, insurance,
travel, tourism, hotel, banking,
mariti...
Uruguay Round Package – 6.
Textile.
• An attempt was made
to re-integrate textile
into GATT in order to
do away with Multi...
Uruguay Round Package – 7.
Institutional Matter.
• It handles the grievances of two
participating nations.
• Try to remove...
1/29/2015 Kartikeya Singh
Ministerial Conference
General Council
Dispute Settlement
Body
CT in Goods CT in Services
CT in ...
WTO – 1st Ministerial Conference
• Singapore, 9th
December, 1996.(128
countries)
• Reaffirmation of
International labour
o...
WTO – 2nd Ministerial
Conference
• Geneva, 18th May, 1998 (132
countries)
– Setting up of a mechanism to
ensure full and f...
WTO – 3rd Ministerial
Conference
• Seattle, 3rd December, 1999, (135 countries).
– This meeting was a failure.
– Dispute e...
WTO – 4th Ministerial Conference
• Doha, Qatar, 9-13 November, 2001,(142
countries).
• Declaration included :
– Reduction ...
WTO – 5th Ministerial Conference
• Cancun, Mexico,
10 to 14 September 2003,
– TRIPS and public health
– Geographical indic...
WTO – 6th Ministerial Conference
• Hong Kong on December – 13-18,
2005.
1/29/2015 Kartikeya Singh
WTO and the India.
• A growth Story….
• Please see the text
box…..
1/29/2015 Kartikeya Singh
WTO and India
• Favorable Impact :-
a) Increase in export earnings
• Growth in merchandise
exports.
• Growth in Service ex...
WTO and India
• Unfavorable Impact :-
I. TRIPS
 Pharma companies
 Agricultural output.
 Micro ornanism
II. TRIMS
III. G...
WTO and Anti Dumping
Measures.
• Dumping :- The sale of goods
abroad at a price which is lower than
the selling price of s...
Impact of Globalisation
• See the text box….
1/29/2015 Kartikeya Singh
WTO members..
• List of WTO Members(see the text
box).
1/29/2015 Kartikeya Singh
List of developing countries
1. Afghanistan
2. Albania
3. Algeria
4. American Samoa
5. Angola
6. Antigua and Barbuda
7. Ar...
Generalized System of Preferences
• The Generalized System of Preferences, or GSP, is a
formal system of exemption from th...
h.International commodity agreement
• An international commodity agreement is an
undertaking by a group of countries to st...
•End of Unit IV
1/29/2015 Kartikeya Singh 155
Syllabus of Unit V
• Regional Economic Groups
– EU,
– NAFTA,
– ASEAN,
– SAFTA and other Regional
Economic Groupings.
1/29/...
The European Union (EU)
The World’s Strongest
Supranational Organization
What is it?
• The European Union (EU) is a family of
democratic European countries, committed to
working together for peac...
European Coal and Steel
Community
• Founded in 1951
(Treaty of Paris)
• Purpose was to
reduce potential
for conflict
betwe...
History of the EU
• The historical roots of the European
Union lie in the Second World War.
– Idea of European integration...
Creation of the EU
GROWTH OF THE EU
GROWTH OF THE EU
Admission
of Romania
and
Bulgaria
2007
Major
debates
about
Turkey
Croatia and
Macedonia
are new
candidates
CORE
?
?
CONFIRMATION OF CORE-DOMAIN MODEL
How does it work?
• There are five EU institutions,
each playing a specific role:
– European Parliament (one of two
legisl...
The Euro
• The Treaty of Rome (1957)
– Declared a common market as a European
objective
– Aim: increase economic prosperit...
The Eurozone
• Coins and banknotes 1st used
Jan 1, 2002
• Cyprus sheduled to join in 2008
• Slovakia scheduled to join in
...
Impact of the Eurozone
• What impact do you think the
Eurozone has on cultural diffusion?
• What impact do you think the
E...
A strong currency!
Why have bills different sizes &
colors?
What values are
reflected in these
“artifacts” that are not
found in American
mon...
What about Switzerland?
• Swiss are traditionally suspicious of other
countries
• Swiss tradition of neutrality (WWI & WWI...
Costs of staying out
• Export problems
– Access to EU markets is not guaranteed
• Inflation problems
– Europeans nervous a...
The EU in comparative
perspective
US dominates entertainment
industry in Europe
Cultural hegemony?
SUMMARY
• The European Union is the strongest supranational
organization in the world
– shared currency & financial manage...
NAFTA, the North American Free Trade Agreement,
was signed by the United States, Canada, and
Mexico.
•NAFTA was signed in
...
NAFTA was written to create a Free Trade Area
in North America.
• “Free Trade” means that countries may freely
trade goods...
The purpose of the agreement is to:
 Allow free movement of goods and services
among the countries.
 Promote competition...
Most economists agree that the agreement has
been good for the countries involved.
• Free trade increases sales and profits for Mexico,
Canada and the U.S.A., thus strengthening their
economies.
• Lack of ...
a. “NAFTA Members
Prepare for Picnic!”
b. “NAFTA Members
Graciously Share
Business Ventures!”
c. “NAFTA Members
Cover Up
C...
• Free trade has caused more U.S. jobs losses
than gains, especially for higher-wage jobs.
›Factories, called
Maquiladoras...
• Minimum Wage
Mexico - $3.40 per day vs. US - $5.15 per hour
• Example: Hourly compensation costs for
production workers ...
• These factories make many types of products.
• 3 Day Blinds
• 20th Century Plastics
• Acer Peripherals
• Bali Company, Inc.
• Bayer Corp./Medsep
• BMW
• Canon Business...
United States
• They can move their factories to
Mexico and ship the goods to the US
with no tariffs.
• They would not hav...
Disadvantages
• Some economists argue that NAFTA
has been beneficial to business
owners and elites in all three
countries,...
Disadvantages
 Other economists believe that NAFTA has
not been sufficient (or worked fast enough)
to produce economic co...
Disadvantages
• Since labor is cheaper in Mexico,
many U.S. manufacturing industries
moved part of their production from
h...
Disadvantages
• NAFTA expanded the maquiladora
program, in which U.S.-owned
companies employed Mexican
workers near the bo...
Advantages
• In 2007, Canada and Mexico were,
respectively, the first and second
largest export markets for U.S.
agricultu...
Advantages
• Agricultural trade increased in both
directions(U.S.-Mexico) under
NAFTA from $7.3 billion in 1994 to
$20.1 b...
Advantages
• From 1992-2007, the value of U.S.
agricultural exports worldwide
climbed 65%.
• Over that same period, U.S. f...
Advantages
• NAFTA expanded the maquiladora
program, which enabled U.S.-owned
companies to employ Mexican workers
near the...
Association of Southeast Asian
Nations
ESTABLISHMENT AND
MEMBERSHIP
The Association of Southeast Asian Nations or ASEAN was
established on 8 August 1967 in Bangk...
The Establishment of ASEAN
Bangkok, 8 August 1967
Goals of ASEAN
• To accelerate the economic growth,
social progress and cultural
development in the region through
joint e...
Political Objective :
Promoting Peace
& Stability
• Through political dialogue and confidence
building, no tension has esc...
ECONOMIC AND FUNCTIONAL
COOPERATION
• When ASEAN was established, trade among the
Member Countries was insignificant
• Thu...
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
International business environment MB-IB-01-MBA-IIIrd SEM-UPTU
Upcoming SlideShare
Loading in...5
×

International business environment MB-IB-01-MBA-IIIrd SEM-UPTU

1,347

Published on

International Business Environment - Sem III, UPTU.

Published in: Education, Business
0 Comments
3 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
1,347
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
64
Comments
0
Likes
3
Embeds 0
No embeds

No notes for slide
  • http://dgff.unctad.org/chapter1/1.1.html
  • INTRODUCTION
    One of the most dramatic and significant world trends in the past two decades has been the rapid, sustained growth of international business. Markets have become truly global for most goods, many services, and especially for financial instruments of all types. World product trade has expanded by more than 6 percent a year since 1950, which is more than 50 percent faster than growth of output the most dramatic increase in globalization, has occurred in financial markets. In the global forex markets, billions of dollars are transacted each day, of which more than 90 percent represent financial transactions unrelated to trade or investment. Much of this activity takes place in the so-called Euromarkets, markets outside the country whose currency is used. This pervasive growth in market interpenetration makes it increasingly difficult
    for any country to avoid substantial external impacts on its economy. In particular massive capital flows can push exchange rates away from levels that accurately reflect competitive relationships among nations if national economic policies or performances diverse in short run. The rapid dissemination rate of new technologies speeds the pace at which countries must adjust to external events. Smaller, more open countries, long ago gave up illusion of domestic policy autonomy. But even the largest and most apparently self-contained economies, including the US, are now significantly affected by the global economy. Global integration in trade, investment, and factor flows, technology, and communication has been tying economies together. Why then are these changes coming about, and what exactly are they? It is in practice, easier to identify the former than interpret the latter. The reason is that during the past few decades, the emergence of corporate empires in the world economy, based on the contemporary scientific and technological developments, has led to globalization of production. As a result of international production,
    co-operation among global productive units, the large-scale capital exports, “the export of production” or “production abroad” has come into prominence as against commodity export in world economy in recent years. Global corporations consider the whole of the world their production place, as well as their market and move factors of production to wherever they can optimally be combined. They avail fully of the revolution that has brought about instant worldwide communication, and near instant-transformation. Their ownership is transnational; their management is transnational. Their freely mobile management, technology and capital, the modern agent for stepped-up economic growth, transcend individual national boundaries. They are domestic in every place, foreign in none-a true corporate citizen of the world. The greater interdependence among nations has already reduced economic insularity of the peoples of the world, as well as their social and political insularity.
  • http://dgff.unctad.org/chapter1/1.1.html

    http://www.oecd.org/std/its/2539563.pdf
  • http://edit.freemap.jp/en/trial_version/edit/world

    Removal of Tariff and Non-Tariff barriers
    Transfer of technology leads to increased production
    Increase in interdependence of countries.
    International trade after WWII entered a long period of record expansion with world merchandise exports rising by more than 8% during 1950-70
    Trade growth slowed down after two oil shocks
    1990s trade expanded again more rapidly, partly driven by innovations in the information technology(IT) sector.
    Despite the small contraction of trade caused by the dotcom crisis in 2001, the average expansion of world merchandise exports continued to be high.
    For the entire 1950-2007 period,trade expanded on average by 6.2 per cent, which is much stronger than in the first wave of globalisation from 1850 to 1913. As dollar prices expanded much faster after WWII than before WWI the nominal trade expansion of the former period is more than twice as fast as in the earlier period.


  • http://www.wto.org/english/res_e/statis_e/statis_bis_e.htm?solution=WTO&path=/Dashboards/MAPS&file=Map.wcdf&bookmarkState={%22impl%22:%22client%22,%22params%22:{%22langParam%22:%22en%22}}
  • Environmental analysis is defined as “the process by which strategists monitor the economic, governmental/legal, market/competitive, supplier/technological, geographic, and social settings to determine opportunities and threats to their firms”.
    “Environmental diagnosis consists of managerial decisions made by analyzing the significance of the data (opportunities and threats) of the environmental analysis”.
    The definition of environmental analysis given above has been made in the context of the strategic management process for an existing firm. It is, however, quite obvious that environmental analysis is the cornerstone of new business opportunity analysis too. Indeed, today a much more greater emphasis is given than in the past to the fact that environmental analysis is an essential prerequisite for strategic management
    decision-making. For instance, in his recent editions of Marketing Management, Philip Kotler, the world-renowned professor and author, describes Marketing Environment Audit as the first component of a Marketing Audit, whereas in the earlier editions of this book, the definition of Marketing Audit does not have any reference to the environment. It is now unquestionably accepted that the prospects of a business depend not
    only on its resources but also on the environment. An analysis of the strengths, weaknesses, opportunities and threats (SWOT) is very much essential for the business policy formulation. Just as the life and success of an individual depend on his innate capability, including physiological factors, traits and skills, to cope with the environment, the survival and success of a business firm depend on its innate strength – the resources as its command, including physical resources, financial resources, skill and organization – and its adaptability to the environment.
    Every business enterprise, thus, consists of a set of internal factors and is confronted with a set of external factors. The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organization and functional means, such as the marketing mix, to suit the environment. The external factors, on the other hand, are by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors, geophysical factors etc. are, therefore, generally regarded as uncontrollable factors.
    As the environmental factors are beyond the control of a firm, its success will depend to a very large extent on its adaptability to the environment, i.e. its ability to properly design and adjust the internal (the controllable) variables to take advantage of the opportunities and to combat the threats in the environment. The business environment comprises a microenvironment and a macro environment.

    MICRO ENVIRONMENT
    “The micro environment consists of the actors in the company’s immediate environment” that effect the performance of the company. These include the suppliers, marketing intermediaries, competitors, customers, and publics. “The macro environment consists of the larger societal forces that affect all the actors in the company’s micro environment namely, the demographic, economic, natural, technological, political and cultural forces”. It is quite obvious that the micro environmental factors are more intimately linked with the company than the macro factors. The micro forces need not necessarily affect all the firms in a particular industry in the same way. Some of the micro factors may be particular to a firm. For example, a firm, which depends on a supplier, may have a supplier environment, which is entirely different from that of a firm whose supply source is different. When competing firms in an industry have the same microelements, the relative success of the firms depends on their relative effectiveness in dealing with these elements.
    SUPPLIERS
    An important force in the microenvironment of a company is the supplier, i.e., those who supply the inputs like raw materials and components to the company. The importance of reliable source/sources of supply to the smooth functioning of the business is obvious. Uncertainty regarding the supply or other supply constraints often compels companies to maintain high inventories causing cost increases. It has been pointed out that factories in India maintain indigenous stocks of 3-4 months and imported stocks of 9 months as against an average of a few hours to two weeks in Japan. Because of the sensitivity of the supply, many companies give high importance to vendor development. Vertical integration, where feasible, helps solve the supply problem. It is very risky to depend on a single because a strike, lock out or any other production problem with that supplier may seriously affect the company. Similarly, a change in the attitude or behavior of the supplier may also affect the company. Hence, multiple sources of supply often help reduce such risks. The supply management assumes more importance in a scarcity environment. “Company purchasing agents are learning how to “wine and dine” suppliers to obtain favorable treatment during periods of shortages. In other words, the
    purchasing department might have to “market” itself to suppliers”.
    CUSTOMERS
    As it is often, exhorted, the major task of a business is to create and sustain customers. A business exists only because of its customers. Monitoring the customer sensitivity is, therefore, a prerequisite for the business success. A company may have different categories of consumers like individuals, households, industries and other commercial establishments, and government and other institutions. For example, the customers of a tyre company may include individual automobile owners, automobile manufacturers, public sector transport undertakings and other transport operators. Depending on a single customer is often too risky because it may place the company in a poor bargaining position, apart from the risks of losing business consequent to the winding up of business by the customer or due to the customer’s switching over the competitors of the company. The choice of the customer segments should be made by considering a number of factors including the relative profitability, dependability, stability of demand, growth prospects and the extent of competition.
    COMPETITORS
    A firm’s competitors include not only the other firms, which market the same or similar products, but also all those who compete for the discretionary income of the consumers. For example, the competition for a company’s televisions may come not only from other T.V. manufacturers but also from two-wheelers, refrigerators, cooking ranges, stereo sets and so on and from firms offering savings and investment schemes like banks, Unit Trust of India, companies accepting public deposits or issuing shares or debentures etc. This competition among these products may be described as desire competition as the primary task here is to influence the basic desire of the consumer. Such desire
    competition is generally very high in countries characterized by limited disposable incomes and many unsatisfied desires (and, of course, with many alternatives for spending/investing the disposable income). If the consumer decides to spend his discretionary income on recreation (or recreation cum education) he will still confronted with a number of alternatives choose from like T.V., stereo, two-in-one, three –in-one etc. The competition among such alternatives, which satisfy a particular category of desire, is called generic competition. If the consumer decides to go in for a T.V. the next question is which form of the T.V. – black and white or colour, with remote-control or without it etc. In other words, there is a product form competition. Finally the consumer encounters the brand competition i.e., the competition between the different brands of the same product form. An implication of these different demands is that a marketer should strive to create primary and selective demand for his products.
    MARKETING INTERMEDIARIES
    The immediate environment of a company may consist of a number of marketing intermediaries which are “firms that aid the company in promoting, selling and distributing its goods to final buyers”. The marketing intermediaries include middlemen such as agents and merchants
    who “help the company find customers or close sales with them”, physical distribution firms which “assist the company in stocking and moving goods form their origin to their destination” such as warehouses and transportation firms; marketing service agencies which “assist the company in targeting and promoting its products to the right markets” such as advertising agencies, marketing research firms, media firms and consulting firms; and financial intermediaries which finance marketing activities and insure business risks. Marketing intermediaries are vital links between the company and the final consumers. A dislocation or disturbance of this link, or a wrong choice of the link, may cost the company very heavily. Retail chemists and druggists in India once decided to boycott the products of a leading company on some issue such as poor retail margin. This move for collective boycott was, however, objected to by the MRTP commission; but for this company would, perhaps, have been in trouble.
    DEMOCRATIC
    A company may encounter certain publics in its environment. “A public is any group that has an actual or potential interest in or impact on an organization's ability to achieve its interests. Media publics, citizens action publics and local publics are some examples. For example, one of the leading companies in India was frequently under attack by the media public, particularly by a leading daily, which was allegedly bent on
    bringing down the share prices of the company by tarnishing its image. Such exposures or campaigns by the media might even influence the government decisions affecting the company. The local public also affects many companies. Environmental pollution is an issue often taken up by a number of local publics. Actions by local publics on the issue have caused some companies to suspend operations and/or take pollution abatement measures.
    GROWTH OF CONSUMER PUBLIC IS AN IMPORTANT
    DEVELOPMENT AFFECTING BUSINESS.
    It is wrong to think that all publics are threats to business. Some of the actions of the publics may cause problems for companies. However, some publics are an opportunity for the business. Some businessmen, for example, regard consumerism as an opportunity for the business. The media public may be used to disseminate useful information. Similarly, fruitful cooperation between a company and the local publics may be established for the mutual benefit of the company and the local community.
    MACRO ENVIRONMENT
    As stated earlier, a company and the forces in its microenvironment operate in a larger macro environment of forces that shape opportunities and pose threats to the company. The macro forces are, generally, more uncontrollable than the micro forces. A sketch picture of the important macro-environmental forces is given below.
    ECONOMIC ENVIRONMENT
    Economic conditions, economic policies and the economic system are the important external factors that constitute the economic environment of a
    business. The economic conditions of a country-for example, the nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, etc- are among the very important determinants of business strategies.
    In a developing country, the low income may be the reason for the very low demand for a product. The sale of a product for which the demand is income elastic naturally increases with an increase in income. But a firm is unable to increase the purchasing power of the people to generate a higher demand for its product. Hence, it may have to reduce the price of the product to increase the sales. The reduction in the cost of production may have to be effected to facilitate price reduction. It may even be necessary to invent or develop a new low-cost product to suit the low-income market. Thus Colgate designed a simple, hand-driven, inexpensive ($10) washing machine for low-income buyers in less developed countries. Similarly, the National Cash Register Company took an innovative step backward by developing a crank-operated cash register that would sell at half the cost of a modern cash register and this was well received in a number of developing countries. In countries where investment and income are steadily and rapidly rising, business prospects are generally bright, and further investments are encouraged. There are a number of economists and businessmen who feel that the developed countries are no longer worthwhile propositions for investment because these economies have reached more or less saturation levels in certain respects. In developed economies, replacement demand accounts for a considerable part of the total demand for many consumer durables whereas the replacement demand is negligible in the developing economies.
    The economic policy of the government, needless to say, has a very great impact on business. Some types or categories of business are favorably affected by government policy, some adversely affected, while it is neutral in respect of others. For example, a restrictive import policy, or a policy of protecting the home industries, may greatly help the import-competing industries. Similarly, an industry that falls within the priority sector in terms of the government policy may get a number of incentives and other positive support from the government, whereas those industries which are regarded as inessential may have the odds against them. In India, the government’s concern about the concentration of economic power
    restricted the role of the large industrial houses and foreign concerns to the core sector, the heavy investment sector, the export sector and backward regions. The monetary and fiscal policies, by the incentives and disincentives they offer and by their neutrality, also affect the business in different ways. An industrial undertaking may be able to take advantage of external economies by locating itself in a large city; but the Government of India’s policy was to discourage industrial location in such places and constrain or persuade industries undertaking, a backward area location may have many disadvantages. However, the incentives available for units located in these backward areas many compensate them for these disadvantages, at least to some extent. According to the industrial policy of the Government of India until July 1991, the development of 17 of the most important industries were reserved for the state. In the development of another 12 major industries, the state was to play a dominant role. In the remaining industries, co-operative enterprises, joint sector enterprises and small scale units were to get preferential treatment over large entrepreneurs in the private sector. The government policy, thus limited the scope of private business. However, the new policy ushered in since July 1991 has wide opened many of the industries for the private sector. The scope of international business depends, to a large extent, on the economic system. At one end, there are the free market economies or capitalist economies, and at the other end are the centrally planned economies or communist countries. In between these two are the mixed economies. Within the mixed economic system itself, there are wide variations. The freedom of private enterprise is the greatest in the free market economy, which is characterized by the following assumptions:
    (i) The factors of production (labor, land, capital) are privately owned,
    and production occurs at the initiative of the private enterprise.
    (ii) Income is received in monetary form by the sale of services of the
    factors of production and from the profits of the private enterprise.
    (iii) Members of the free market economy have freedom of choice in so
    far as consumption, occupation, savings and investment are
    concerned.
    (iv) The free market economy is not planned controlled or regulated by
    the government. The government satisfies community or collective
    wants, but does not compete with private firms, nor does it tell the
    people where to work or what to produce.
    The completely free market economy, however, is an abstract system rather than a real one. Today, even the so-called market economies are subject to a number of government regulations. Countries like the United States, Japan, Australia, Canada and member countries of the EEC are regarded as market economies. The communist countries have, by and large, a centrally planned economic system. Under the rule of a communist or authoritarian socialist government, the state owns all the means of production, determines the goals of production and controls the economy according to a central master plan. There is hardly any consumer sovereignty in a centrally planned economy, unlike in the free
    market economy. The consumption pattern in a centrally planned economy is dictated by the state. China, East Germany Soviet Union, Czechoslovakia, Hungary, Poland etc., had centrally planned economies. However, recently several of these countries have discarded communist system and have moved towards the market economy. In between the capitalist system and the centrally planned system falls the system of the mixed economy, under which both the public and private sectors co-exist, as in India. The extent of state participation varies widely between the
    mixed economies. However, in many mixed economies, the strategic and other nationally very important industries are fully owned or dominated by the state. The economic system, thus, is a very important determinant of the scope of private business. The economic system and policy are, therefore, very important external constraints on business.
    POLITICAL AND LEGAL ENVIRONMENT
    Political and government environment has close relationship with the economic system and economic policy. For example, the communist countries had a centrally planned economic system. In most countries, apart from those laws that control investment and related matters, there are a number of laws that regulate the conduct of the business. These laws cover such matters as standards of products, packaging, promotion etc. In many countries, with a view to protecting consumer interests, regulations have become stronger. Regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many countries. Some governments specify certain standards for the products (including packaging) to be marketed in the country; some even prohibit the marketing of certain products. In most nations, promotional activities are subject to various types of controls. Media advertising is not permitted in Libya. Several European countries restrain the use of children in commercial advertisements. In a number of countries, including India, the advertisement of alcoholic liquor is prohibited. Advertisements, including packaging, of cigarettes must carry the statutory warning that “cigarette smoking is injurious to health”. Similarly, advertisements of baby food must necessarily inform the potential buyer that breast-feeding in the best. In countries like Germany, product comparison advertisements and the use of superlatives like ‘best’ or ‘excellent’ in advertisements is not allowed In the United States, the Federal Trade Commission is empowered to require a company to provide the quality, performance or comparative prices of its products. “What is being asked of the drug industry and of American business in general is a fuller disclosure of the relevant facts about products. For drugs, food additives, some cosmetic preparations, and so forth, a full disclosure requires more knowledge of the long-range side effects of materials ingested into the complex human body. For American industry as a whole, greater candour has been called for under such legislation as Truth in Lending and Fair Packaging Act, under administrative decrees such as the warning requirement on cigarette packages and advertising, under the threats of private damage suits using the common-law concepts of warranty, and under voluntary programmes such as unit pricing and listing nutritional content of foods. The increasing complexity of products and the variety of product choices suggest further moves away from ‘caveat emptor’ or ‘let the buyer beware’ doctrines, moves which on the whole should prove a welcome although sometimes inconvenient challenge for business”.
    There are a host of statutory controls on business in India. If the MRTP companies wanted to expand their business substantially, they had to convince the government that such expansion was in the public interest. Indeed, the “Government in India has an all-pervasive and predominantly restrictive influence over various aspects of business, e.g, industrial licensing which decides location, capacity and process; import licensing for machinery and materials; size and price of capital issue; loan finance; pricing; managerial remuneration; expansion plans; distribution restrictions and a host of other enactments. Therefore, a considerable part of attention of a Chief Executive and his senior colleagues has to be devoted to a continuous dialogue with various government agencies to ensure growth and profitability within the framework of controls and restraints”.
    Many countries today have laws to regulate competition in the public interest. Elimination of unfair competition and dilution of monopoly power are the important objectives of these regulations. In India, the monopolistic undertakings, dominants undertakings and large industrial houses are subject to a number of regulations which prevent the concentration of economic power to the common detriment. The MRTP Act also controls monopolistic, restrictive and unfair trade practices which are prejudicial to public interest. Such regulations brighten the prospects of small and new firms. They also increase the scope of some of the existing firms to venture into new areas of business. The special privileges available to the small scale sector have also contributed to the phenomenal success of the Nirma. Certain changes in government policies such as the industrial policy, fiscal policy, tariff policy etc. may have profound impact on business. Some policy developments create opportunities as well as threats. In other words, a development which brightens the prospects of some enterprises may pose a threat to some others. For example, the industrial policy liberalizations in India, particularly around the mid-eighties have opened up new opportunities and threats. They have provided a lot of opportunities to a large number of enterprises to diversify and to make their product mix better. But they have also given rise to serious threat to many existing products by way of increased competitions; many seller’s markets have given way to buyer’s markets. Even products which were seldom advertised have come to be promoted very heavily. This battle for the market has provided a splendid opportunity for the advertising
    industry. Advertising billing has been increasing substantially. That an estimated cost savings of about Rs. 200 crores per year have accrued to the Reliance Industries as a result of the changes in duties on some of the material inputs used by them is just an indication of the tremendous impact the fiscal and tariff policies can have on the business.
    SOCIO-CULTURAL ENVIRONMENT
    The socio-cultural fabric is an important environmental factor that should be analysed while formulating business strategies. The cost of ignoring the customs, traditions, taboos, tastes and preferences, etc., of people could be very high. The buying and consumption habits of the people, their language, beliefs and values, customs and traditions, tastes and preferences, education are all factors that affect business. For a business to be successful, its strategy should be the one that is appropriate in the socio-cultural environment. The marketing mix will have to be so designed as best to suit the environmental characteristics of the market. In Thailand, Helene Curtis switched to black shampoo because Thai women felt
    that it made their hair look glossier. Nestle, a Swiss multinational company, today brews more than forty varieties of instant coffee to satisfy different national tastes. Even when people of different cultures use the same basic product, the mode of consumption, conditions of use, purpose of use or the perceptions of the product attributes may vary so much so that the product attributes method of presentation, positioning, or method of promoting the product may have to be varied to suit the characteristics of different markets. For example, the two most
    important foreign markets for Indian shrimp are the U.S and Japan. The product attributes for the success of the product in these two markets differ. In the U.S. market, correct weight and bacteriological factors are more important rather than eye appeal, colour, uniformity of size and arrangement of the shrimp which are very important in Japan. Similarly, the mode of consumption of tuna, another seafood export from India, differs between the U.S. and European countries. Tuna fish sandwiches, an American favourite which accounts for about 80 per cent of American tuna consumption, have little appeal in high tuna consumption European countries where people eat it right from the can. A very interesting
    example is that of the Vicks Vaporub, the popular pain balm, which is used as a mosquito repellant in some of the tropical areas.
    The differences in languages sometimes pose a serious problem, even necessitating a change in the brand name. Preett was, perhaps, a good brand name in India, but it did not suit in the overseas market; and hence it was appropriate to adopt ‘Prestige’ for the overseas markets. Chevrolet’s brand name ‘Nova’ in Spanish means “it doesn’t go”. In Japanese, General Motors’ “Body by Fisher” translates as corpse by Fisher”. In Japanese, again, 3M’s slogan “sticks like crazy “translates as “sticks foolishly”. In some languages, Pepsi-Cola’s slogan “come alive” translates as “come out of the grave”. The values and beliefs associated with colour vary significantly between different cultures. Blue, considered feminine and warm in Holland, is regarded as masculine and cold in Sweden. Green is a favorite colour in the Muslim world; but in Malaysia, it is associated with illness. White indicates death and mourning in China and Korea; but in some countries, it expresses happiness and is the colour of the wedding dress of the bride. Red is a popular colour in the communist countries; but many African countries have a national distaste for red colour.
    Social inertia and associated factors come in the way of the promotion of certain products, services or ideas. We come across such social stigmas in the marketing of family planning ideas, use of bio-gas for cooking, etc. In such circumstances, the success of marketing depends, to a very large extent, on the success in changing social attitudes or value systems. There are also a number of demographic factors, such as the age, and sex composition of population, family size, habitat, religion, etc., which influence the business. While dealing with the social environment, we must also consider the social environment of the business which encompasses its social responsibility and the alertness or vigilance of the consumers and of society at large. The societal environment has assumed great importance in recent years. As Barker observes, business “traditionally has been held responsible for quantities for the supply of goods and jobs, for costs, prices, wages, hours of works, and for standards of living. Today, however, business is being asked to take a responsibility for the quality of life in our society. The expectation is that business- in addition to its traditional accountability for economic performance and results – will concern itself with the health of the society, that it will come up with the cures for the ills that currently beset us and, indeed, will find ways of anticipating and preventing future problems in these areas”. As Stern succinctly points out, the “more educated the society becomes, the more interdependent it becomes, and the more discretionary the use of its
    resources, the more marketing will become enmeshed in social issues. Marketing personnel are at interface between company and society. In this
    position, they have the responsibility not merely for designing a competitive marketing strategy, but for sensitizing business to the social, as well as the product demand of society”.
    DEMOGRAPHIC ENVIRONMENT
    Demographic factors like the size, growth rate, age composition, sex composition, etc. of the population, family size, economic stratification of the
    population, educational levels, languages, caste, religion etc. Are all factors that are relevant to business? Demographic factors such as size of the population, population growth rate, age composition, life expectancy, family size, spatial dispersal, occupational status, employment pattern etc, affect the demand for goods and services. Markets with growing population and income are growth markets. But the decline in the birth rates in countries like the United States have affected the demand for baby products. Johnson and Johnson have overcome this problem by repositioning
    their products like baby shampoo and baby soap, promoting them also to the adult segment, particularly to the females. A rapidly increasing population indicates a growing demand for many products. High population growth rate also indicates an enormous increase in labour supply. When the Western countries experienced the industrial revolution, they had the problem of labour supply, for the population growth rate was
    comparatively low. Labour shortage and rising wages encouraged the growth of labour-saving technologies and automation. But most developing countries of today are experiencing a population explosion and a situation of labour surplus. The governments of developing countries, therefore, encourage labour intensive methods of production. Capital intensive methods, automation and even rationalization are apposed by labour and many sociologists, politicians and economists in these countries. The population growth rate, thus, is an important environmental factor which affects business. Cheap labour and a growing market have encouraged many multinational corporations to invest in developing countries.
    The occupational and spatial mobilities of population have implications for business. If labour is easily mobile between different occupations and regions, its supply will be relatively smooth, and this will affect the wage rate.If labour is highly heterogeneous in respect of language, caste and religion, ethnicity, etc., personnel management is likely to become a more complex task. The heterogeneous population with its varied tastes, preferences, beliefs, temperaments, etc. gives rise to differing demand patterns and calls for different marketing strategies. References to a number of demographic factors that have business implications have already been made under “socio-cultural environment”.
    NATURAL ENVIRONMENT
    Geographical and ecological factors, such as natural resource endowments, weather and climatic conditions, topographical factors, locational aspects in the global context, port facilities, etc., are all relevant to business. Differences in geographical conditions between markets may sometimes call for changes in the marketing mix. Geographical and ecological factors also influence the location of certain industries. For example, industries with high material index tend to be located near the raw material sources. Climatic and weather conditions affect the location of certain industries like the cotton textile industry. Topographical factors may, affect the demand pattern. For example, in hilly areas with a difficult terrain, jeeps may be in greater demand than cars. Ecological factors have recently assumed great importance. The depletion of natural resources, environmental pollution and the disturbance of the ecological balance has caused great concern. Government policies aimed at the preservation of environmental purity and ecological balance, conservation of non-replenishable resources, etc., have resulted in additional responsibilities and problems for business, and some of these have the effect of increasing the cost of production and marketing. Externalities have become an important problem the business has to confront with.
    PHYSICAL AND TECHNOLOGICAL ENVIRONMENT
    Physical Factors, such as geographical factors, weather and climatic conditions may call for modifications in the product, etc., to suit the environment because these environmental factors are uncontrollable. For example, Esso adapted its gasoline formulations to suit the weather conditions prevailing in different markets. Business prospects depend also on the availability of certain physical facilities. Some products, like many consumer durables, have certain use facility characteristics. The sale of television sets, for example, is limited by the extent of the coverage of the telecasting. Similarly, the demand for refrigerators and other electrical appliances is affected by the extent of electrification and the reliability of power supply. The demand for LPG gas stoves is affected by the rate of growth of gas connections. Technological factors sometimes pose problems. A firm, which is unable to cope with the technological changes, may not survive. Further, the differing technological environment of different markets or countires may call for product modifications. For example, many appliances and instruments in the U.S.A. are designed for 110 volts but this needs to be converted into 240 volts in countries which have that power system. Technological developments may increase the
    demand for some existing products. For example, voltage stabilisers help increase the sale of electrical appliances in markets characterised by frequent voltage fluctuations I power supply. However, the introduction of TV’s, Fridges etc, with in built voltage stabilizer adversely affects the demand for voltage stabilizers.
    Advances in the technologies of food processing and preservation, packaging etc., have facilitated product improvements and introduction of new products and have considerably improved the marketability of products. The television has added a new dimension to product promotion. The advent of TV and VCP/VCR has, however, adversely affected the cinema theatres. The fast changes in technologies also create problems for enterprises as they render plants and products obsolete quickly. Product-market-technology matrix generally has a much shorter life today than in the past. It is particularly so in the international marketing context. It may be interesting to note that almost half of Hindustan Lever’s 1980 export business did not exist in 1987. In fact, as much as a third of the company’s 1987 turnover was from products and markets, which were under three years of age.
    INTERNATIONAL ENVIRONMENT
    The international environment is very important from the point of view of certain categories of business. It is particularly important for industries directly depending on imports or exports and import-competing industries. For example, a recession in foreign markets, or the adoption of protectionist policies by foreign nations, may create difficulties for industries depending on exports. On the other hand, a boom in the export market or a relaxation of the protectionist policies may help the export-oriented industries. A liberalization of imports may help some industries which use imported items, but may adversely affect import-competing industries. It has been observed that major international developments have their spread effects on domestic business. The Great Depression in the United States sent its shock waves to a number of other countries. Oil price hikes have seriously affected a number of economies. These hikes have increased the cost of production and the prices of certain products, such as fertilizers, synthetic fibres, etc. The high oil price has led to an increase in the demand for automobile models that economise energy consumption. The demand for natural fibres increased because of the oil crisis. The oil crisis also prompted some companies to resort to demarketing. “Demarketing refers to the process of cutting consumer demand for a product back to level that can be supplied by the firm”. Some oil companies-the Indian Oil Corporation, for example-have publicized tips o how to cut oil consumption. When the fertilizer price shot up following the oil crisis, some fertilizer companies appealed to the farmers to use fertilizers only for important and remunerative crops. The importance of natural manure like compost as a substitute for chemical fertilizers was also emphasized. The oil crisis led to a reorientation of the Government of India’s energy policy. Such developments affect the demand, consumption and investment pattern. A good export market enables a firm to develop a more profitable product mix and to consolidate its position in the domestic market. Many companies now plan production capacities and investment taking into account also the foreign markets. Export marketing facilitates the attainment of optimum capacity utilization; a company may be able to mitigate the effects of domestic recession by exporting. However, a company which depends on the export market to a considerable extent has also to face the impact of adverse developments in foreign markets.
  • There is no comprehensive system of laws or regulations for guiding business transactions between two countries.
    The legal environment consists of laws and policies from all countries engaged in international commercial activity.
    Early trade customs centered around the law of the sea and provided, among other things, for rights of shipping in foreign ports, salvage rights, and freedom of passage.
    During the Middle Ages, international principles embodied in the lex mercatoria (law of merchants) governed commercial transactions throughout Europe.
    Although laws governing international transactions were more extensive in some countries than others, the customs and codes of conduct created a workable legal structure for the protection and encouragement of international transactions.
    The international commerce codes in use today in much of Europe and in the United States are derived in part from those old codes.
  • NAFTA - It reduces or eliminates tariffs and trade
    barriers among those nations. Although some tariffs were eliminated
    immediately, many are phased out through the year 2009. The industries most
    affected include agricultural products, automobiles, pharmaceuticals, and
    textiles. NAFTA will create the largest free trade area in the world; 360 million
    people. NAFTA includes a variety of issues not usually found in trade
    agreements, such as protection of intellectual property and the environment, and
    the creation of special panels to resolve disputes involving unfair trade practices,
    investment restrictions, and environmental issues. NAFTA could eventually
    include North and South America; 850 million people with over $18 trillion in
    annual purchasing power.
    World Trade Organization
    For 48 years, GATT worked to reduce trade barriers imposed by governments.
    GATT focused on trade restrictions (import quotas and tariffs); it published
    tariff schedules to which its signers agreed. Tariff schedules were developed in
    multinational trade negotiations or “rounds.” In the most recent round—the
    Uruguay Round—124 nations participated. GATT was replaced by the WTO,
    one of the most significant developments of the last round. Since 1995, WTO
    has overseen the trade agreement and has a dispute-resolution system, using
    three person arbitration panels. The panels follow strict schedules for rendering
    decisions. WTO members cannot veto decisions, unlike before (unless they
    withdraw from the agreement). The latest round will eventually lower world
    tariffs by 40 percent. The U.S., Japan, members of the EU, and other
    industrialized nations agreed to eliminate all tariffs in 10 industries:
    Beer
    Construction equipment
    Distilled spirits
    Farm machinery
    Furniture
    Medical equipment
    Paper
    Pharmaceuticals
    Steel
    Toys
    The WTO agreement provides world protection for intellectual property; 7 years
    of protection for trademarks, 20 years for patents, and up to 50 years for
    copyrights (generally moving to 75 years plus in most places). Only in the film
    and television industry was the U.S. not able to gain a barrier to trade reduction
    in Europe. France was particularly adamant about maintaining the barrier
    because of its concerns about the heavy cultural influence of such programming
    (and the demise of the not very successful French film industry).
    Import Policy
    Countries have long imposed restrictions or prohibitions on the import and
    export of certain products. In addition, export laws and regulations are
    often enacted to encourage international business activity by domestic
    industries.
    Taxes on Imports
    Restrictions on imports may be imposed to generate revenue for the government
    or to protect domestic industries from foreign competition. Import licensing
    procedures, quotas, testing requirements, safety and manufacturing standards,
    government procurement policies, and complicated customs procedures are all
    ways to regulate imports. The most common means of regulating imports into a
    country is through tariffs.
    Tariff Classes
    A tariff is a duty or tax levied by a government on imports. Tariffs can be
    classified into:
    Specific Tariffs which imposes a fixed tax or duty on each unit of the product,
    Ad Valorem Tariffs which impose a tax based on a percentage of the price of
    the product. In the U.S. the duty or tax is published in the Tariff Schedules that
    apply to all products entering U.S. ports. Customs officials classify products and
    determine the tariff rates when products enter the country. Any tariff imposed
    must be paid before the good may enter the country. Most disputes that occur in
    this area arise over the classification of products under the tariff schedules.
    Import Controls
    The Department of Commerce, the International Trade Administration (ITA),
    and the International Trade Commission (ITC) have certain abilities to restrict
    foreign imports. The agencies are concerned with foreign companies that
    practice “dumping” or receive a subsidy from their governments to lower their
    costs of production. The agencies may also restrict imports in the absence of
    dumping or subsidies. As barriers to trade are lowered, some domestic industries
    and their workers face economic hardships due to foreign competition. The ITC
    can temporarily restrict imports to provide those industries with an opportunity
    to adjust to the new competitive environment created by the lower trade barriers.
    Antidumping Orders—Under both the WTO and U.S. antidumping laws,
    dumping “is the business practice of charging a lower price in the export market
    then in the home market, after taking into consideration important differences in
    the sale (such as credit terms and transportation) and the goods being sold.” This
    was first prohibited in 1916, when Congress enacted the Antidumping Duty
    Act. If a company is dumping goods in the U.S., an antidumping order will be
    issued. Goods from the company are subject to payment of an antidumping duty
    (tax). The amount of the duty is determined by comparing the market price in
    the company’s home market with the price charged in the U.S. The percentage
    difference between the home and U.S. markets will form an ad valorem duty to
    be applied to the price when sold in the U.S. This duty is paid to Customs by
    cash deposit at the port, normally by the importer. Duty orders generally remain
    in place until the importer has demonstrated three consecutive years of “fair
    market value” sales and Commerce is convinced there is a low likelihood of
    “less than fair market value” sales in the future.
    Export Regulation and Promotion
    Most governments encourage exporting to stimulate domestic employment and
    bring in foreign exchange. This is believed needed to help prevent a trade
    deficit. at the same time, for policy reasons, it a governments may restrict
    exports of certain products.
    Export Restrictions
    The U.S. imposes restrictions on the sale of a good or a technology may
    a) Injure domestic industry (e.g., the export of a raw material in short
    supply),
    b) Jeopardize national security (e.g., selling military hardware to the wrong
    Country)
    c) Conflict with national policy (e.g., selling goods to a country the
    government has embargoed because of terrorist activities).
    Restrictions are managed by licensing according to terms of the Export
    Administration Act (EAA).Commerce imposes licensing requirements under
    strict standards. Licensing Agreements. The EAA allows Commerce to require
    the following export licenses, depending on the type of good or technology
    being exported:
    1) A validated license, authorizing a specific export;
    2) A qualified general license, authorizing multiple exports;
    3) A general license that applies to most U.S. goods; and
    4) Other licenses as may assist in the implementation of the Act.
    The Commodity Control List lists products subject to licenses and the
    restrictions imposed. Goods not on the List are subject to a general license—
    which often only requires a Shipper’s Export Declaration filed with Commerce.
    A validated export license is required for the export of certain goods on the List
    because of national security. Commerce may impose controls “only to the extent
    necessary to restrict the export of goods and technology which would make a
    significant contribution to the military potential of any other country or
    combination of countries which would prove detrimental to the national security
    of the United States.” Application to Reexported U.S. Goods. Commerce’s
    licensing requirements apply to the reexport of U.S. goods. That is, an export
    license is needed to ship U.S.-origin controlled goods from say, India to Taiwan.
    This is to stop shipment of sensitive goods from the U.S. to a “safe” country and
    then to a controlled country
    Foreign Corrupt Practices Act
    Government is more involved in business in many countries than in the U.S.
    When approval of business action is at the discretion of a government official,
    the likelihood of corruption rises. Scandals shook many countries in the 1990s,
    notably in Italy, Japan, and Korea. The Foreign Corrupt Practices Act (FCPA)
    prohibits U.S. companies from bribing foreign officials. A study of U.S.
    companies by the SEC found the practice was wide spread—over 400
    companies (117 were Fortune 500 companies) admitted making bribes to
    Foreign officials.

  • International Contracts
    The basis for any international agreement is the contract between parties.
    International contracts often involve parties from differing cultural backgrounds
    who do not know each other well at the outset of negotiations.
    i) Cultural Aspects
    Sensitivity to cultural differences is important in international contracting.
    Although language should not be a barrier, contract terms must be clearly
    defined and understood. Attitude toward relationships is a cultural difference in
    some countries. Contracts based on trust are often relatively short in length, with
    few contingencies expressly provided. The expectation is that issues can be
    worked out as they arise with the parties working to maintain the underlying
    relationship.
    ii) Financial Aspects
    In managing financial risks that may arise, care should be taken in the
    specification of the method of payment and the currency in which payment is to
    be made.
    iii) Exchange Markets
    Foreign exchange markets allow trading (buying and selling) currencies. In
    general, trade between countries can occur only if it is possible to exchange the
    currency of one country for the currency of another country. Exchange of money
    is not always simple. Losses in international business sometimes center on
    exchange risk—the potential loss or profit that occurs
    between the time the currency is acquired and the time the currency is
    exchanged for another currency
  • Key Clauses in International Contracts
    Certain clauses are often included in international contracts and have become
    standard items to consider.
    Payment Clauses
    How payment is to be received should be clearly specified. The problems of
    repatriation should be addressed. Problems with inflation and currency exchange
    risks, especially in unstable economies or in long-term agreements, should also
    be addressed in this clause of the contract.
    b) Choice of Language Clause
    A word or phrase in one language may not be readily translatable to another. A
    contract should have a choice of language clause, which sets out the language by
    which the contract is to be interpreted.
    c) Force Majeure Clause
    Force majeure is a French term meaning a “superior or irresistible force.” It
    protects the contracting parties from problems or contingencies beyond their
    control.
    d) Forum Selection and Choice-of-Law Clauses
    To reduce uncertainty in the event of a dispute, the parties select the court in
    which disputes are to be resolved and the law that is to be applied. This
    eliminates the possibility that the parties will go “forum shopping”—looking for
    the most favorable forum for the resolution of a dispute.
    e) UN Convention on Contracts: Most major trading countries have agreed to (Uniform Commercial Code. 71 F.3d 1024.)
    the U.N. Convention on Contracts for the International Sale of Goods. Contracts
    that incorporate that law are subject to rules very essentially the same as the
    Uniform Commercial Code. See 71 F.3d 1024.
    f) Loss of Investment
    Governmental action can result in loss of investment through nationalization,
    expropriation, and confiscation. Investors concerned about such losses may
    purchase insurance.
    g) Nationalization
    Occurs when a country takes over, or nationalizes, a foreign investment.
    Compensation by the government is often less than the true value of the
    business. The stated purpose of nationalization is related to public welfare.
    Nationalization is not uncommon, averaging over 100 incidents per decade.
    h) Insuring against Risk of Loss
    Investors concerned with the risk of loss of investment may obtain insurance.
    An all-risk insurance policy can help in case of nationalization or upon
    occurrence of a specific problem. Outstanding risks such as currency blockages,
    embargoes, and a government’s arbitrary decision to recall letters of credit may
    be insured through major insurers such as Lloyds of London. Some countries
    have agencies to assist in insuring their exporters from risk of loss. In the
    U.S., the Overseas Private Investment Corporation (OPIC) insures investors
    willing to invest in less-developed countries friendly to the U.S.
  • Definition of 'Strategic Alliance'
    An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities.

    For example, an oil and natural gas company might form a strategic alliance with a research laboratory to develop more commercially viable recovery processes. A clothing retailer might form a strategic alliance with a single clothing manufacturer to ensure consistent quality and sizing. A major website could form a strategic alliance with an analytics company to improve its marketing efforts.


  • Advantages
    The possible benefits of a multinational investing in a country may include:
    Improving the balance of payments - inward investment will usually help a country's balance of payments situation. The investment itself will be a direct flow of capital into the country and the investment is also likely to result in import substitution and export promotion. Export promotion comes due to the multinational using their production facility as a basis for exporting, while import substitution means that products previously imported may now be bought domestically.
    Providing employment - FDI will usually result in employment benefits for the host country as most employees will be locally recruited. These benefits may be relatively greater given that governments will usually try to attract firms to areas where there is relatively high unemployment or a good labour supply.
    Source of tax revenue - profits of multinationals will be subject to local taxes in most cases, which will provide a valuable source of revenue for the domestic government.
    Technology transfer - multinationals will bring with them technology and production methods that are probably new to the host country and a lot can therefore be learnt from these techniques. Workers will be trained to use the new technology and production techniques and domestic firms will see the benefits of the new technology. This process is known as technology transfer.
    Increasing choice - if the multinational manufactures for domestic markets as well as for export, then the local population will gain form a wider choice of goods and services and at a price possibly lower than imported substitutes.
    National reputation - the presence of one multinational may improve the reputation of the host country and other large corporations may follow suite and locate as well.
    Disadvantages
    The possible disadvantages of a multinational investing in a country may include:
    Environmental impact - multinationals will want to produce in ways that are as efficient and as cheap as possible and this may not always be the best environmental practice. They will often lobby governments hard to try to ensure that they can benefit from regulations being as lax as possible and given their economic importance to the host country, this lobbying will often be quite effective.
    Access to natural resources - multinationals will sometimes invest in countries just to get access to a plentiful supply of raw materials and host nations are often more concerned about the short-term economic benefits than the long-term costs to their country in terms of the depletion of natural resources.
    Uncertainty - multinational firms are increasingly 'footloose'. This means that they can move and change at very short notice and often will. This creates uncertainty for the host country.
    Increased competition - the impact the local industries can be severe, because the presence of newly arrived multinationals increases the competition in the economy and because multinationals should be able to produce at a lower cost.
    Crowding out - if overseas firms borrow in the domestic economy this may reduce access to funds and increase interest rates.
    Influence and political pressure - multinational investment can be very important to a country and this will often give them a disproportionate influence over government and other organisations in the host country. Given their economic importance, governments will often agree to changes that may not be beneficial for the long-term welfare of their people.
    Transfer pricing - multinationals will always aim to reduce their tax liability to a minimum. One way of doing this is through transfer pricing. The aim of this is to reduce their tax liability in countries with high tax rates and increase them in the countries with low tax rates. They can do this by transferring components and part-finished goods between their operations in different countries at differing prices. Where the tax liability is high, they transfer the goods at a relatively high price to make the costs appear higher. This is then recouped in the lower tax country by transferring the goods at a relatively lower price. This will reduce their overall tax bill.
    Low-skilled employment - the jobs created in the local environment may be low-skilled with the multinational employing expatriate workers for the more senior and skilled roles.
    Health and safety - multinationals have been accused of cutting corners on health and safety in countries where regulation and laws are not as rigorous.
    Export of Profits - large multinational are likely to repatriate profits back to their 'home country', leaving little financial benefits for the host country.
    Cultural and social impact - large numbers of foreign businesses can dilute local customs and traditional cultures. For example, the sociologist George Ritzer coined the term McDonaldization to describe the process by which more and more sectors of American society as well as of the rest of the world take on the characteristics of a fast-food restaurant, such as increasing standardisation and the movement away from traditional business approaches.
  • Advantages
    The possible benefits of a multinational investing in a country may include:
    Improving the balance of payments - inward investment will usually help a country's balance of payments situation. The investment itself will be a direct flow of capital into the country and the investment is also likely to result in import substitution and export promotion. Export promotion comes due to the multinational using their production facility as a basis for exporting, while import substitution means that products previously imported may now be bought domestically.
    Providing employment - FDI will usually result in employment benefits for the host country as most employees will be locally recruited. These benefits may be relatively greater given that governments will usually try to attract firms to areas where there is relatively high unemployment or a good labour supply.
    Source of tax revenue - profits of multinationals will be subject to local taxes in most cases, which will provide a valuable source of revenue for the domestic government.
    Technology transfer - multinationals will bring with them technology and production methods that are probably new to the host country and a lot can therefore be learnt from these techniques. Workers will be trained to use the new technology and production techniques and domestic firms will see the benefits of the new technology. This process is known as technology transfer.
    Increasing choice - if the multinational manufactures for domestic markets as well as for export, then the local population will gain form a wider choice of goods and services and at a price possibly lower than imported substitutes.
    National reputation - the presence of one multinational may improve the reputation of the host country and other large corporations may follow suite and locate as well.
    Disadvantages
    The possible disadvantages of a multinational investing in a country may include:
    Environmental impact - multinationals will want to produce in ways that are as efficient and as cheap as possible and this may not always be the best environmental practice. They will often lobby governments hard to try to ensure that they can benefit from regulations being as lax as possible and given their economic importance to the host country, this lobbying will often be quite effective.
    Access to natural resources - multinationals will sometimes invest in countries just to get access to a plentiful supply of raw materials and host nations are often more concerned about the short-term economic benefits than the long-term costs to their country in terms of the depletion of natural resources.
    Uncertainty - multinational firms are increasingly 'footloose'. This means that they can move and change at very short notice and often will. This creates uncertainty for the host country.
    Increased competition - the impact the local industries can be severe, because the presence of newly arrived multinationals increases the competition in the economy and because multinationals should be able to produce at a lower cost.
    Crowding out - if overseas firms borrow in the domestic economy this may reduce access to funds and increase interest rates.
    Influence and political pressure - multinational investment can be very important to a country and this will often give them a disproportionate influence over government and other organisations in the host country. Given their economic importance, governments will often agree to changes that may not be beneficial for the long-term welfare of their people.
    Transfer pricing - multinationals will always aim to reduce their tax liability to a minimum. One way of doing this is through transfer pricing. The aim of this is to reduce their tax liability in countries with high tax rates and increase them in the countries with low tax rates. They can do this by transferring components and part-finished goods between their operations in different countries at differing prices. Where the tax liability is high, they transfer the goods at a relatively high price to make the costs appear higher. This is then recouped in the lower tax country by transferring the goods at a relatively lower price. This will reduce their overall tax bill.
    Low-skilled employment - the jobs created in the local environment may be low-skilled with the multinational employing expatriate workers for the more senior and skilled roles.
    Health and safety - multinationals have been accused of cutting corners on health and safety in countries where regulation and laws are not as rigorous.
    Export of Profits - large multinational are likely to repatriate profits back to their 'home country', leaving little financial benefits for the host country.
    Cultural and social impact - large numbers of foreign businesses can dilute local customs and traditional cultures. For example, the sociologist George Ritzer coined the term McDonaldization to describe the process by which more and more sectors of American society as well as of the rest of the world take on the characteristics of a fast-food restaurant, such as increasing standardisation and the movement away from traditional business approaches.

  • Acquisition refers to the process of acquiring a company at a price called the acquisition price or acquisition premium. The price is paid in terms of cash or acquiring company's shares or both.  There are two types of business acquisitions, friendly acquisition and hostile acquisition. In a friendly acquisition, a company invites other companies to acquire its business. In a hostile acquisition, the company does not want to sell its business. However, the other company determined to acquire the business takes the aggressive route of buying the equity shares of the target company from its existing shareholders.  As the motive is to takeover someone else's business, the acquiring company offers to buy the shares at a very high premium, that is, the gaining difference between the offer price and the market price of the share. This entices the shareholders and they sell their stake to earn quick money. This way the acquiring company gets the majority stake and takes over the ownership control of the target company.  Acquiring an existing business enables a company to speed up its expansion process because they do not have to start from the very scratch. The target company is already established and has all the processes in place. The acquiring company simply has to focus on merging the business with its own and move ahead with its growth strategies. However, in reality, it is not as simple as it seems. Most of the acquisitions fail miserably due to poor implementation attitude and strategies. 
  • There are many types of mergers and acquisitions that redefine the business world with new strategic alliances and improved corporate philosophies. From the business structure perspective, some of the most common and significant types of mergers and acquisitions are listed below:  Horizontal Merger  This kind of merger exists between two companies who compete in the same industry segment. The two companies combine their operations and gains strength in terms of improved performance, increased capital, and enhanced profits. This kind substantially reduces the number of competitors in the segment and gives a higher edge over competition.  Vertical Merger  Vertical merger is a kind in which two or more companies in the same industry but in different fields combine together in business. In this form, the companies in merger decide to combine all the operations and productions under one shelter. It is like encompassing all the requirements and products of a single industry segment.  Co-Generic Merger Co-generic merger is a kind in which two or more companies in association are some way or the other related to the production processes, business markets, or basic required technologies. It includes the extension of the product line or acquiring components that are all the way required in the daily operations. This kind offers great opportunities to businesses as it opens a hue gateway to diversify around a common set of resources and strategic requirements.  Conglomerate Merger Conglomerate merger is a kind of venture in which two or more companies belonging to different industrial sectors combine their operations. All the merged companies are no way related to their kind of business and product line rather their operations overlap that of each other. This is just a unification of businesses from different verticals under one flagship enterprise or firm. 


    The recent merger and acquisition 2011 made by Indian companies worldwide are those of Tata Steel acquiring Corus Group plc, UK based company with a deal of US $12,000 million and Hindalco acquiring Novelis from Canada for US $6,000 million. 
  • Joint venture, commonly known as JV, is a contractual arrangement between two or more parties who agree to come together to undertake a business project. All the parties contribute capital and share profits and losses in a decided ratio. Joint ventures are a type of partnership that is always executed through a written contract known as a joint venture agreement (JVA). These contracts are registered and are legally binding on the parties. Moreover, they are temporary in nature because they are executed for a definite period of time to accomplish a specific purpose. The contract automatically dissolves after the expiry of the decided time period.  Joint ventures are typically used in high-risk business propositions that require considerable amount of investment and technical expertise. That is why all research and development activities are mainly undertaken through joint ventures. Overall, joint ventures help to safely penetrate untapped markets and create new distribution links. It increases the capacity and creates a larger pool of resources.  Such partnerships were increasingly formed during the initial stages of the IT boom in India. People were new to the virtual environment and were skeptical about its success. Therefore, many JVs were formed to enter online business or e-commerce. However, the success of any JV depends upon the coordination and understanding between the parties. They should prefer hiring a law firm to draft a detailed JVA to handle conflicting clauses. 
    Construction companies often create joint ventures for large construction projects such as bridges and office complexes. In this case, a steel company, concrete company, electrical contractor and general contractor might combine forces to lower the cost of the project by each supplying its goods and services to the joint venture and splitting profits.

    Mergers and Acquisitions :
    Mergers and acquisitions are more popular form of partnerships which is more simple to understand. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.  A merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place.  For example,Oracle Corporation is very famous for its acquisitions. Oracle acquires companies and not merge with them. Oracle acquired Siebel,BEA,Peoplesoft and more recently SUN through friendly or hostile take overs.
    Mergers vs strategic alliances vs joint ventures
    Joint Venture :
    A joint venture is a legal partnership between two(or more) companies where in they both make a new (third) entity for competitive advantage. With a JV you will have something more than simple governance; you'll have a completely new entity with a board, officers, and an executive team. Effectively a JV is a completely new organization, but owned by the founding participants. The board of directors generally is constructed with representatives of the founding organizations. This new company will "do business" with the founding entities-usually as suppliers. e.g. Uninor was a joint venture between Unitech(India) and Telenor(France) and KPIT Cummins is a joint venture between KPIT and Cummins Infosystems. In both the above cases,the resulting company is a new independent company with its own set of executives and even name.
    Strategic Alliance :
    SA is a kind of partnership between two entities in which they take advantage of each other’s core strengths like proprietary processes, intellectual capital, research, market penetration, manufacturing and/or distribution capabilities etc. They share their core strengths with each other. They will have an open door relationship with another entity and will mostly retain control. The length of agreement could have a sunset date or could be open-ended with regular performance reviews. However, they simply would want to work with the other organizations on a contractual basis, and not as a legal partnership. e.g. HP and Oracle had a strategic alliances wherein HP recommended Oracle as the perfect database for their servers by optimizing their servers as per Oracle and Oracle also did the same.

  • Amalgamation is an arrangement where two or more companies consolidate their business to form a new firm, or become a subsidiary of any one of the company. For practical purposes, the terms amalgamation and merger are used interchangeably. However, there is a slight difference. Merger involves the fusion of two or more companies into a single company where the identity of some of the companies gets dissolved. On the other hand, amalgamation involves dissolving the entities of amalgamating companies and forming a new company having a separate legal entity. Normally, there are two types of amalgamations. The first one is similar to a merger where all the assets and liabilities and shareholders of the amalgamating companies are combined together. The accounting treatment is done using the pooling of interests method. It involves laying down a standard accounting policy for all the companies and then adding their relevant accounting figures like capital reserve, machinery, etc. to arrive at revised figures.  The second type of amalgamation involves acquisition of one company by another company. In this, the shareholders of the acquired company may not have the same equity rights as earlier, or the business of the acquired company may be discontinued. This is like a purchase of a business. The accounting treatment is done using a purchase method. It involves recording assets and liabilities at their existing values or revaluating them on the basis of their fair values at the time of amalgamation. 
  • Merger and acquisition is often known to be a single terminology defined as a process of combining two or more companies together. The fact remains that the so-called single terminologies are different terms used under different situations. Though there is a thin line difference between the two but the impact of the kind of completely different in both the cases.  Merger is considered to be a process when two or more companies come together to expand their business operations. In such a case the deal gets finalized on friendly terms and both the companies share equal profits in the newly created entity.  When one company takes over the other and rules all its business operations, it is known as acquisitions. In this process of restructuring, one company overpowers the other company and the decision is mainly taken during downturns in economy or during declining profit margins. Among the two, the one that is financially stronger and bigger in all ways establishes it power. The combined operations then run under the name of the powerful entity who also takes over the existing stocks of the other company.  Another difference is, in an acquisition usually two companies of different sizes come together to combat the challenges of downturn and in a merger two companies of same size combine to increase their strength and financial gains along with breaking the trade barriers. A deal in case of an acquisition is often done in an unfriendly manner, it is more or less a forceful or a helpless association where the powerful company either swallows the operation or a company in loss is forced to sell its entity. In case of a merger there is a friendly association where both the partners hold the same percentage of ownership and equal profit share. 

    British Salt operating in UK merged with TATA Chemicals based in India.
    Zain Telecommunications operating in Africa merged with Bharti Airtel Limited based in India.
    Bank of Rajasthan operating in India merged with ICICI Bank (India).
  • Four Broad Multinational Strategies
    Solutions to the global--local responsiveness dilemma
    multidomestic
    transnational
    international
    regional
  • INTERNATIONAL ENVIRONMENT
    The international environment is very important from the point of view of
    certain categories of business. It is particularly important for industries directly
    depending on imports or exports and import-competing industries. For example,
    a recession in foreign markets, or the adoption of protectionist policies by
    foreign nations, may create difficulties for industries depending on exports. On
    the other hand, a boom in the export market or a relaxation of the protectionist
    policies may help the export-oriented industries. A liberalization of imports
    may help some industries which use imported items, but may adversely affect
    import-competing industries.
    It has been observed that major international developments have their spread
    effects on domestic business. The Great Depression in the United States sent its
    shock waves to a number of other countries. Oil price hikes have seriously
    affected a number of economies. These hikes have increased the cost of
    production and the prices of certain products, such as fertilizers, synthetic fibres,
    etc. The high oil price has led to an increase in the demand for automobile
    models that economise energy consumption. The demand for natural fibres
    increased because of the oil crisis.
    The oil crisis also prompted some companies to resort to demarketing.
    “Demarketing refers to the process of cutting consumer demand for a product
    back to level that can be supplied by the firm”. Some oil companies-the Indian
    Oil Corporation, for example-have publicized tips o how to cut oil consumption.
    When the fertilizer price shot up following the oil crisis, some fertilizer
    companies appealed to the farmers to use fertilizers only for important and
    remunerative crops. The importance of natural manure like compost as a
    substitute for chemical fertilizers was also emphasized.
    The oil crisis led to a reorientation of the Government of India’s energy policy.
    Such developments affect the demand, consumption and investment pattern.
    A good export market enables a firm to develop a more profitable product mix
    and to consolidate its position in the domestic market. Many companies now
    plan production capacities and investment taking into account also the foreign
    markets. Export marketing facilitates the attainment of optimum capacity
    utilization; a company may be able to mitigate the effects of domestic recession
    by exporting. However, a company which depends on the export market to a
    considerable extent has also to face the impact of adverse developments in
    foreign markets.
    Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development.    Foreign direct investment, in its classic definition,  is defined as a company from one country making a physical investment into building a factory in another country.  The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment. In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting management interest  in a company or enterprise outside the investing firm’s home country. As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a  facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property,   In the past decade, FDI has come to play a major role in the internationalization of business. Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in enterprises, and changes in capital markets profound changes have occurred in the size, scope and methods of FDI. New information technology systems, decline in global communication costs have made management of foreign investments far easier than in the past. The sea change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberalization, easing of restrictions on foreign investment and acquisition in many nations, and the deregulation and privitazation of many industries, has probably been been the most significant catalyst for FDI’s expanded role.
     
    The most profound effect has been seen in developing countries, where yearly foreign direct investment flows have increased from an average of less than $10 billion in the 1970’s to a yearly average of less than $20 billion in the 1980’s, to explode in the 1990s from $26.7billion in 1990 to $179 billion in 1998 and $208 billion in 1999 and now comprise a large portion of global FDI..   Driven by mergers and acquisitions and internationalization of production in a range of industries, FDI into developed countries last year rose to $636 billion, from $481 billion in 1998 (Source: UNCTAD)
    Proponents of foreign investment point out that the exchange of investment flows benefits both the home country (the country from which the investment originates) and the host country (the destination of the investment).  Opponents of FDI note that multinational conglomerates are able to wield great power over smaller and weaker economies and can drive out much local competition.  The truth lies somewhere in the middle.
    For small and medium sized companies, FDI represents an opportunity to become more actively involved in international business activities.  In the past 15 years, the classic definition of FDI as noted above has changed considerably.  This notion of a change in the classic definition, however, must be kept in the proper context. Very clearly, over 2/3 of direct foreign investment is still made in the form of fixtures, machinery, equipment and buildings. Moreover, larger multinational corporations and conglomerates still make the overwhelming percentage of FDI. But, with the advent of the Internet, the increasing role of technology, loosening of  direct investment restrictions in many markets and decreasing communication costs means that newer, non-traditional forms of investment will play an important role in the future.   Many governments, especially in industrialized and developed nations, pay very close attention to foreign direct investment because the investment flows into and out of their economies can and does have a significant impact.  In the United States, the Bureau of Economic Analysis, a section of the U.S. Department of Commerce, is responsible for collecting economic data about the economy including information about foreign direct investment flows.  Monitoring this data is very helpful in trying to determine the impact of such investments on the overall economy, but is especially helpful in evaluating industry segments. State and local governments watch closely because they want to track their foreign investment attraction programs for successful outcomes.
     
    How Has FDI Changed in the Past Decade? 
    As mentioned above, the overwhelming majority of foreign direct investment is made in the form of fixtures, machinery, equipment and buildings. This investment is achieved or accomplished mostly via mergers & acquisitions. In the case of traditional manufacturing, this has been the primary mechanism for investment and it has been heretofore very efficient.  Within the past decade, however, there has been a dramatic increase in the number of technology startups and this, together with the rise in prominence of Internet usage, has fostered increasing changes in foreign investment patterns. Many of these high tech startups are very small companies that have grown out of research & development projects often affiliated with major universities and with some government sponsorship. Unlike traditional manufacturers, many of these companies do not require huge manufacturing plants and immense warehouses to store inventory. Another factor to consider is the number of companies whose primary product is an intellectual property right such as a software program or a software-based technology or process. Companies such as these can be housed almost anywhere and therefore making a capital investment in them does not require huge outlays for fixtures, machinery and plants.
    In many cases, large companies still play a dominant role in investment activities in small, high tech oriented companies. However, unlike in the past, these larger companies are not necessarily acquiring smaller companies outright.  There are several reasons for this, but the most important one is most likely the risk associated with such high tech ventures.  In the case of mature industries, the products are well defined. The manufacturer usually wants to get closer to its foreign market or wants to circumvent some trade barrier by making a direct foreign investment. The major risk here is that you do not sell enough of the product that you manufactured. However, you have added additional capacity and in the case of multinational corporations this capacity can be used in a variety of ways. 
    High tech ventures tend to have longer incubation periods. That is, the product tends to require significant development time. In the case of software and other intellectual property type products, the product is constantly changing even before it hits the marketplace. This makes the investment decision more complicated. When you invest in fixtures and machinery, you know what the real and book value of your investment will be. When you invest in a high tech venture, there is always an element of uncertainty.  Unfortunately, the recent spate of dot.com failures is quite illustrative of this point.
    Therefore, the expanded role of technology and intellectual property has changed the foreign direct investment playing field. Companies are still motivated to make foreign investments, but because of the vagaries of technology investments, they are now finding new vehicles to accomplish their goals. Consider the following:
     
    Licensing and technology transfer.  Licensing and tech transfer have been essential in promoting collaboration between the academic and business communities. Ever since legal hurdles were removed that allowed universities to hold title to research and development done in their labs, licensing agreements have helped turned raw technology into finished products that are viable in competitive marketplaces.  With some help from a variety of government agencies in the form of grants for R&D as well as other financial assistance for such things as incubator programs, once timid college researchers are now stepping out and becoming cutting edge entrepreneurs. These strategic alliances have had a serious impact in several high tech industries, including but not limited to: medical and agricultural biotechnology, computer software engineering, telecommunications, advanced materials processing, ceramics, thin materials processing, photonics, digital multimedia production and publishing, optics and imaging and robotics and automation. Industry clusters are now growing up around the university labs where their derivative technologies were first discovered and nurtured.  Licensing agreements allow companies to take full advantage of new and exciting technologies while limiting their overall risk to royalty payments until a particular technology is fully developed and thus ready to put new products into the manufacturing pipeline.Reciprocal distribution agreements.  Actually, this type of strategic alliance is more trade-based, but in a very real sense it does in fact represent a type of direct investment.  Basically, two companies, usually within the same or affiliated industries, agree to act as a national distributor for each other’s products.  The classical example is to be found in the furniture industry.  A U.S.-based manufacturer of tables signs a reciprocal distribution agreement with a Spanish-based manufacturer of chairs. Both companies gain direct access to the other’s distribution network without having to pay distributor support payments and other related expenses found within the distribution channel and neither company can hurt the other’s market for its products.  Without such an agreement in place, the Spanish manufacturer might very well have to invest in a national sales office to coordinate its distributor network, manage warehousing, inventory and shipping as well as to handle administrative tasks such as accounting, public relations and advertising.Joint venture and other hybrid strategic alliances.  The more traditional joint venture is bi-lateral, that is it involves two parties who are within the same industry who are partnering for some strategic advantage.  Typical reasons might include a need for access to proprietary technology that might tip the competitive edge in another competitor’s favor, desire to gain access to intellectual capital in the form of ultra-expensive human resources, access to heretofore closed channels of distribution in key regions of the world. One very good reason why many joint ventures only involve two parties is the difficulty in integrating different corporate cultures. With two domestic companies from the same country, it would still be very difficult. However, with two companies from different cultures, it is almost impossible at times. This is probably why pure joint ventures have a fairly high failure rate only five years after inception. Joint ventures involving three or more parties are usually called syndicates and are most often formed for specific projects such as large construction or public works projects that might involve a wide variety of expertise and resources for successful completion.  In some cases, syndicates are actually easier to manage because the project itself sets certain limits on each party and close cooperation is not always a prerequisite for ultimate success of the endeavor.Portfolio investment.  Yes, we know that you’re paying attention and no we’re not trying to trip you up here.  Remember our definition of foreign direct investment as it pertains to controlling interest.  For most of the latter part of the 20th century when FDI became an issue, a company’s portfolio investments were not considered a direct investment if the amount of stock and/or capital was not enough to garner a significant voting interest amongst shareholders or owners.  However, two or three companies with "soft" investments in another company could find some mutual interests and use their shareholder power effectively for management control. This is another form of strategic alliance, sometimes called "shadow alliances".  So, while most company portfolio investments do not strictly qualify as a direct foreign investment, there are instances within a certain context that they are in fact a real direct investment. 
    Why is FDI important for any consideration of going global?
    The simple answer is that making a direct foreign investment allows companies to accomplish several tasks:
    Avoiding foreign government pressure for local production.Circumventing trade barriers, hidden and otherwise.Making the move from domestic export sales to a locally-based national sales office.Capability to increase total production capacity.Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc;A more complete response might address the issue of global business partnering in very general terms.  While it is nice that many business writers like the expression, “think globally, act locally”, this often used cliché does not really mean very much to the average business executive in a small and medium sized company.  The phrase does have significant connotations for multinational corporations.  But for executives in SME’s, it is still just another buzzword.  The simple explanation for this is the difference in perspective between executives of multinational corporations and small and medium sized companies.  Multinational corporations are almost always concerned with worldwide manufacturing capacity and proximity to major markets.  Small and medium sized companies tend to be more concerned with selling their products in overseas markets.  The advent of the Internet has ushered in a new and very different mindset that tends to focus more on access issues.  SME’s in particular are now focusing on access to markets, access to expertise and most of all access to technology.
     
    What would be some of the basic requirements for companies considering a foreign investment?
    Depending on the industry sector and type of business, a foreign direct investment may be an attractive and viable option. With rapid globalization of many industries and vertical integration rapidly taking place on a global level, at a minimum a firm needs to keep abreast of global trends in their industry. From a competitive standpoint, it is important to be aware of whether a company’s competitors are expanding into a foreign market and how they are doing that. At the same time, it also becomes important to monitor how globalization is affecting domestic clients. Often, it becomes imperative to follow the expansion of key clients overseas if an active business relationship is to be maintained.
    New market access is also another major reason to invest in a foreign country. At some stage, export of product or service reaches a critical mass of amount and cost where foreign production or location begins to be more cost effective. Any decision on investing is thus a combination of a number of key factors including:
    assessment of internal resources,competitiveness,market analysismarket expectations.From an internal resources standpoint, does the firm have senior management support for the investment and the internal management and system capabilities to support the set up time as well as ongoing management of a foreign subsidiary? Has the company conducted extensive market research involving both the industry, product and local regulations governing foreign investment which will set the broad market parameters for any investment decision? Is there a realistic assessment in place of what resource utilization the investment will entail? Has information on local industry and foreign investment regulations, incentives, profit retention, financing, distribution, and other factors been completely analyzed to determine the most viable vehicle for entering the market (greenfield, acquisition, merger, joint venture, etc.)? Has a plan been drawn up with reasonable expectations for expansion into the market through that local vehicle? If the foreign economy, industry or foreign investment climate is characterized by government regulation, have the relevant government agencies been contacted and concurred? Have political risk and foreign exchange risk been factored into the business plan?
  • Licensing and technology transfer.  Licensing and tech transfer have been essential in promoting collaboration between the academic and business communities. Ever since legal hurdles were removed that allowed universities to hold title to research and development done in their labs, licensing agreements have helped turned raw technology into finished products that are viable in competitive marketplaces.  With some help from a variety of government agencies in the form of grants for R&D as well as other financial assistance for such things as incubator programs, once timid college researchers are now stepping out and becoming cutting edge entrepreneurs. These strategic alliances have had a serious impact in several high tech industries, including but not limited to: medical and agricultural biotechnology, computer software engineering, telecommunications, advanced materials processing, ceramics, thin materials processing, photonics, digital multimedia production and publishing, optics and imaging and robotics and automation. Industry clusters are now growing up around the university labs where their derivative technologies were first discovered and nurtured.  Licensing agreements allow companies to take full advantage of new and exciting technologies while limiting their overall risk to royalty payments until a particular technology is fully developed and thus ready to put new products into the manufacturing pipeline.
    Reciprocal distribution agreements.  Actually, this type of strategic alliance is more trade-based, but in a very real sense it does in fact represent a type of direct investment.  Basically, two companies, usually within the same or affiliated industries, agree to act as a national distributor for each other’s products.  The classical example is to be found in the furniture industry.  A U.S.-based manufacturer of tables signs a reciprocal distribution agreement with a Spanish-based manufacturer of chairs. Both companies gain direct access to the other’s distribution network without having to pay distributor support payments and other related expenses found within the distribution channel and neither company can hurt the other’s market for its products.  Without such an agreement in place, the Spanish manufacturer might very well have to invest in a national sales office to coordinate its distributor network, manage warehousing, inventory and shipping as well as to handle administrative tasks such as accounting, public relations and advertising.Joint venture and other hybrid strategic alliances.  The more traditional joint venture is bi-lateral, that is it involves two parties who are within the same industry who are partnering for some strategic advantage.  Typical reasons might include a need for access to proprietary technology that might tip the competitive edge in another competitor’s favor, desire to gain access to intellectual capital in the form of ultra-expensive human resources, access to heretofore closed channels of distribution in key regions of the world. One very good reason why many joint ventures only involve two parties is the difficulty in integrating different corporate cultures. With two domestic companies from the same country, it would still be very difficult. However, with two companies from different cultures, it is almost impossible at times. This is probably why pure joint ventures have a fairly high failure rate only five years after inception. Joint ventures involving three or more parties are usually called syndicates and are most often formed for specific projects such as large construction or public works projects that might involve a wide variety of expertise and resources for successful completion.  In some cases, syndicates are actually easier to manage because the project itself sets certain limits on each party and close cooperation is not always a prerequisite for ultimate success of the endeavor.
    Portfolio investment.  Yes, we know that you’re paying attention and no we’re not trying to trip you up here.  Remember our definition of foreign direct investment as it pertains to controlling interest.  For most of the latter part of the 20th century when FDI became an issue, a company’s portfolio investments were not considered a direct investment if the amount of stock and/or capital was not enough to garner a significant voting interest amongst shareholders or owners.  However, two or three companies with "soft" investments in another company could find some mutual interests and use their shareholder power effectively for management control. This is another form of strategic alliance, sometimes called "shadow alliances".  So, while most company portfolio investments do not strictly qualify as a direct foreign investment, there are instances within a certain context that they are in fact a real direct investment.
  • clearing, hedging, arbitrage and speculation.
  • Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency and coins are common forms of legal tender in many countries. The origin of the term "legal tender" is from Middle English tendren, French tendre (verb form), meaning to offer. The Latin root is tendere (to stretch out), and the sense of tender as an offer is related to the etymology of the English word extend (to hold outward). The noun form of a tender as an offering is a back-formation of the noun from the verb
  • The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Breton Woods Conference and formally created in 1945 by 29 member countries. The IMF's stated goal was to assist in the reconstruction of the world's international payment system post–World War II. Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily. Through this activity and others such as surveillance of its members' economies and the demand for self-correcting policies, the IMF works to improve the economies of its member countries.
    The IMF describes itself as “an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” The organization's stated objectives are to promote international economic co-operation, international trade, employment, and exchange rate stability, including by making financial resources available to member countries to meet balance of payments needs. Its headquarters are in Washington, D.C., United States.
  • The Governments of the COMMONWEALTH OF AUSTRALIA,
    the KINGDOM OF BELGIUM,
    The UNITED STATES OF BRAZIL,
    BURMA,
    CANADA,
    CEYLON,
    the REPUBLIC OF CHILE,
    the REPUBLIC OF CHINA,
    the REPUBLIC OF CUBA,
    the CZECHOSLOVAK REPUBLIC,
    the FRENCH REPUBLIC,
    INDIA,
    LEBANON,
    the GRAND-DUCHY OF LUXEMBURG,
    the KINGDOM OF THE NETHERLANDS,
    NEW ZEALAND,
    the KINGDOM OF NORWAY,
    PAKISTAN,
    SOUTHERN RHODESIA,
    SYRIA,
    the UNION OF SOUTH AFRICA,
    the UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND,
    The UNITED STATES OF AMERICA
  • http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm
  • 1947GenevaTariffs231949AnnecyTariffs131951TorquayTariffs381956GenevaTariffs261960-1961Geneva Dillon RoundTariffs261964-1967Geneva Kennedy RoundTariffs and anti-dumping measures621973-1979Geneva Tokyo RoundTariffs, non-tariff measures, “framework” agreements1021986-1994Geneva Uruguay RoundTariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc123
  • The boxes In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. be reduced), red (forbidden). In agriculture, things are, as usual, more complicated. The Agriculture Agreement has no red box, although domestic support exceeding the reduction commitment levels in the amber box is prohibited; and there is a blue box for subsidies that are tied to programmes that limit production. There are also exemptions for developing countries.
    Amber box All domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box, which is defined in Article 6 of the Agriculture Agreement as all domestic supports except those in the blue and green boxes. These include measures to support prices, or subsidies directly related to production quantities. These supports are subject to limits: “de minimis” minimal supports are allowed (5% of agricultural production for developed countries, 10% for developing countries); the 30 WTO members that had larger subsidies than the de minimis levels at the beginning of the post-Uruguay Round reform period are committed to reduce these subsidies. The reduction commitments are expressed in terms of a “Total Aggregate Measurement of Support” (Total AMS) which includes all supports for specified products together with supports that are not for specific products, in one single figure. In the current negotiations, various proposals deal with how much further these subsidies should be reduced, and whether limits should be set for specific products rather than continuing with the single overall “aggregate” limits.
    Blue box This is the “amber box with conditions” — conditions designed to reduce distortion. Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production (details set out in Paragraph 5 of Article 6 of the Agriculture Agreement). At present there are no limits on spending on blue box subsidies. In the current negotiations, some countries want to keep the blue box as it is because they see it as a crucial means of moving away from distorting amber box subsidies without causing too much hardship. Others wanted to set limits or reduction commitments, some advocating moving these supports into the amber box.  
    Green box  The green box is defined in Annex 2 of the Agriculture Agreement. In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion (paragraph 1). They have to be government-funded (not by charging consumers higher prices) and must not involve price support. They tend to be programmes that are not targeted at particular products, and include direct income supports for farmers that are not related to (are “decoupled” from) current production levels or prices. They also include environmental protection and regional development programmes. “Green box” subsidies are therefore allowed without limits, provided they comply with the policy-specific criteria set out in Annex 2. In the current negotiations, some countries argue that some of the subsidies listed in Annex 2 might not meet the criteria of the annex’s first paragraph — because of the large amounts paid, or because of the nature of these subsidies, the trade distortion they cause might be more than minimal. Among the subsidies under discussion here are: direct payments to producers (paragraph 5), including decoupled income support (paragraph 6), and government financial support for income insurance and income safety-net programmes (paragraph 7), and other paragraphs. Some other countries take the opposite view — that the current criteria are adequate, and might even need to be made more flexible to take better account of non-trade concerns such as environmental protection and animal welfare.



    The conceptual framework  



    The agricultural package of the Uruguay Round has fundamentally changed the way domestic support in favour of agricultural producers was treated under the GATT 1947. A key objective has been to discipline and reduce domestic support while at the same time leaving great scope for governments to design domestic agricultural policies in the face of, and in response to, the wide variety of the specific circumstances in individual countries and individual agricultural sectors. The approach agreed upon is also aimed at helping ensure that the specific binding commitments in the areas of market access and export competition are not undermined through domestic support measures.
    The main conceptual consideration is that there are basically two categories of domestic support — support with no, or minimal, distortive effect on trade on the one hand (often referred to as “Green Box” measures) and trade-distorting support on the other hand (often referred to as “Amber Box” measures). For example, government provided agricultural research or training is considered to be of the former type, while government buying-in at a guaranteed price (“market price support”) falls into the latter category. Under the Agreement on Agriculture, all domestic support in favour of agricultural producers is subject to rules. In addition, the aggregate monetary value of Amber Box measures is, with certain exceptions, subject to reduction commitments as specified in the schedule of each WTO Member providing such support.
        The Green Box 
    The Agreement on Agriculture sets out a number of general and measure-specific criteria which, when met, allow measures to be placed in the Green Box (Annex 2). These measures are exempt from reduction commitments and, indeed, can even be increased without any financial limitation under the WTO. The Green Box applies to both developed and developing country Members but in the case of developing countries special treatment is provided in respect of governmental stockholding programmes for food security purposes and subsidized food prices for urban and rural poor. The general criteria are that the measures must have no, or at most minimal, trade-distorting effects or effects on production. They must be provided through a publicly-funded government programme (including government revenue foregone) not involving transfers from consumers and must not have the effect of providing price support to producers.
    Government service programmes
    The Green Box covers many government service programmes including general services provided by governments, public stockholding programmes for food security purposes and domestic food aid -as long as the general criteria and some other measure-specific criteria are met by each measure concerned. The Green Box thus provides for the continuation (and enhancement) of programmes such as research, including general research, research in connection with environmental programmes, and research programmes relating to particular products; pest and disease control programmes, including general and product-specific pest and disease control measures; agricultural training services and extension and advisory services; inspection services, including general inspection services and the inspection of particular products for health, safety, grading or standardization purposes; marketing and promotion services; infrastructural services, including electricity reticulation, roads and other means of transport, market and port facilities, water supply facilities, etc; expenditures in relation to the accumulation and holding of public stocks for food security purposes; and expenditures in relation to the provision of domestic food aid to sections of the population in need. Many of the regular programmes of governments are thus given the “green light” to continue.
    Direct payments to producers
    The Green Box also provides for the use of direct payments to producers which are not linked to production decisions, i.e. although the farmer receives a payment from the government, this payment does not influence the type or volume of agricultural production (“decoupling”). The conditions preclude any linkage between the amount of such payments, on the one hand, and production, prices or factors of production in any year after a fixed base period. In addition, no production shall be required in order to receive such payments. Additional criteria to be met depend on the type of measure concerned which may include: decoupled income support measures; income insurance and safety-net programmes; natural disaster relief; a range of structural adjustment assistance programmes; and certain payments under environmental programmes and under regional assistance programmes.
        Other exempt measures 
    In addition to measures covered by the Green Box, two other categories of domestic support measures are exempt from reduction commitments under the Agreement on Agriculture (Article 6). These are certain developmental measures in developing countries and certain direct payments under production-limiting programmes. Furthermore, so-called de minimis levels of support are exempted from reduction.
    Developmental measures
    The special and differential treatment under the Green Box aside, the type of support that fits into the developmental category are measures of assistance, whether direct or indirect, designed to encourage agricultural and rural development and that are an integral part of the development programmes of developing countries. They include investment subsidies which are generally available to agriculture in developing country Members, agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members, and domestic support to producers in developing country Members to encourage diversification from growing illicit narcotic crops.
    Blue Box
    Direct payments under production limiting programmes (often referred to as “Blue Box” measures) are exempt from commitments if such payments are made on fixed areas and yield or a fixed number of livestock. Such payments also fit into this category if they are made on 85 per cent or less of production in a defined base period. While the Green Box covers decoupled payments, in the case of the Blue Box measures, production is still required in order to receive the payments, but the actual payments do not relate directly to the current quantity of that production.
    De minimis
    All domestic support measures in favour of agricultural producers that do not fit into any of the above exempt categories are subject to reduction commitments. This domestic support category captures policies, such as market price support measures, direct production subsidies or input subsidies. However, under the de minimis provisions of the Agreement there is no requirement to reduce such trade-distorting domestic support in any year in which the aggregate value of the product-specific support does not exceed 5 per cent of the total value of production of the agricultural product in question. In addition, non-product specific support which is less than 5 per cent of the value of total agricultural production is also exempt from reduction. The 5 per cent threshold applies to developed countries whereas in the case of developing countries the de minimis ceiling is 10 per cent.
        Reduction commitments 
    Twenty-eight Members (counting the EC as one) had non-exempt domestic support during the base period and hence reduction commitments specified in their schedules. The reduction commitments are expressed in terms of a “Total Aggregate Measurement of Support” (Total AMS) which includes all product-specific support and non-product-specific support in one single figure. Members with a Total AMS have to reduce base period support by 20 per cent over 6 years (developed country Members) or 13 per cent over 10 years (developing country Members). In any year of the implementation period, the Current Total AMS value of non-exempt measures must not exceed the scheduled Total AMS limit as specified in the schedule for that year. In other words, the maximum levels of such support are bound in the WTO.
    In the case of Members with no scheduled reduction commitments, any domestic support not covered by one or another of the exception categories outlined above, must be maintained within the relevant “product-specific” and “non-product-specific” de minimis levels.

  • PATENT - The word patent originates from the Latin patere, which means "to lay open" (i.e., to make available for public inspection). More directly, it is a shortened version of the term letters patent, which was a royal decree granting exclusive rights to a person, predating the modern patent system. Similar grants included land patents, which were land grants by early state governments in the USA, and printing patents, a precursor of modern copyright.
    COPY RIGHTS - Copyright is a form of protection provided to the authors of "original works of authorship" including literary, dramatic, musical, artistic, and certain other intellectual works, both published and unpublished. The 1976 Copyright Act generally gives the owner of copyright the exclusive right to reproduce the copyrighted work, to prepare derivative works, to distribute copies or phonorecords of the copyrighted work, to perform the copyrighted work publicly, or to display the copyrighted work publicly.  The copyright protects the form of expression rather than the subject matter of the writing. For example, a description of a machine could be copyrighted, but this would only prevent others from copying the description; it would not prevent others from writing a description of their own or from making and using the machine. Copyrights are registered by the Copyright Office of the Library of Congress.
    TRADE MARKS - A trademark is a word, name, symbol or device which is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others. A service mark is the same as a trademark except that it identifies and distinguishes the source of a service rather than a product. The terms "trademark" and "mark" are commonly used to refer to both trademarks and servicemarks.  Trademark rights may be used to prevent others from using a confusingly similar mark, but not to prevent others from making the same goods or from selling the same goods or services under a clearly different mark. Trademarks which are used in interstate or foreign commerce may be registered with the Patent and Trademark Office. The registration procedure for trademarks and general information concerning trademarks is described in a separate pamphlet entitled "Basic Facts about Trademarks". 
    DESIGN - is the creation of a plan or convention for the construction of an object or a system (as in architectural blueprints, engineering drawing, business process, circuit diagrams and sewing patterns). Design has different connotations in different fields (see design disciplines below). In some cases the direct construction of an object (as in pottery, engineering, management, cowboy coding and graphic design) is also considered as design. 
    TRADE SECRETS -  trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. In some jurisdictions, such secrets are referred to as "confidential information", but should not be referred to as "classified information", due to the nature of the word "classified" in the USA

    Some additional differences between a copyright and a trademark are as follows:  1.   The purpose of a copyright is to protect works of authorship as fixed in a tangible form of expression. Thus, copyright covers: a) works of art (2 or 3 dimensional), b) photos, pictures, graphic designs, drawings and other forms of images; c) songs, music and sound recordings of all kinds; d) books, manuscripts, publications and other written works; and e) plays, movies, shows, and other performance arts.  2.   The purpose of a trademark is to protect words, phrases and logos used in federally regulated commerce to identify the source of goods and/or services.  3.   There may be occasions when both copyright and trademark protection are desired with respect to the same business endeavor. For example, a marketing campaign for a new product may introduce a new slogan for use with the product, which also appears in advertisements for the product. However, copyright and trademark protection will cover different things. The advertisement's text and graphics, as published in a particular vehicle, will be covered by copyright - but this will not protect the slogan as such. The slogan may be protected by trademark law, but this will not cover the rest of the advertisement. If you want both forms of protection, you will have to perform both types of registration.  4.   If you are interested in protecting a title, slogan, or other short word phrase, generally you want a trademark. Copyright law does not protect a bare phrase, slogan, or trade name.  5.   Whether an image should be protected by trademark or copyright law depends on whether its use is intended to identify the source of goods or services. If an image is used temporarily in an ad campaign, it generally is not the type of thing intended to be protected as a logo.  6.   The registration processes of copyright and trademark are entirely different. For copyright, the filing fee is small, the time to obtain registration is relatively short, and examination by the Copyright Office is limited to ensuring that the registration application is properly completed and suitable copies are attached. For trademark, the filing fee is more substantial, the time to obtain registration is much longer, and examination by the Trademark Office includes a substantive review of potentially conflicting marks which are found to be confusingly similar. While copyright registration is primarily an administrative process, trademark registration is very much an adversarial process.  7.   Copyright law provides for compulsory licensing and royalty payments - there is no analogous concept in trademark law. Plus, the tests and definition of infringement are considerably different under copyright law and trademark law. 
  • An attempt was made to re integrate textiles in GATT in order to away with multi fibers arrangement (MFA). Textile has been included in the Dunkel proposal. According to the Uruguay Round agreement textile sector is fully integrated in the GATT from 1st January,2005. Developed countries dismantled the import quotas on garment and textile from 1st January, 2005.
    Quota Abolition in Textiles:-
    WTO members abolished quotas on trade in textiles and clothing on 1january,2005. Consequently, prices started declining and the major buyers are narrowing their sources. Large Asian countries with vertically integrated industries are becoming the worlds leading suppliers. Signs of Industry consolidation are visible particularly in smaller and African countries. Lease developed countries and small vulnerable countries like Cambodia, Haiti and Lesotho, with their low value products, fragmented industries would be adversely affected by the abolition of quota system. As such, they should make strategies to integrate with the industry in larger countries.

  • 1.  The multilateral trading system embodied in the World Trade Organization has contributed significantly to economic growth, development and employment throughout the past fifty years. We are determined, particularly in the light of the global economic slowdown, to maintain the process of reform and liberalization of trade policies, thus ensuring that the system plays its full part in promoting recovery, growth and development. We therefore strongly reaffirm the principles and objectives set out in the Marrakesh Agreement Establishing the World Trade Organization, and pledge to reject the use of protectionism.
    2.  International trade can play a major role in the promotion of economic development and the alleviation of poverty. We recognize the need for all our peoples to benefit from the increased opportunities and welfare gains that the multilateral trading system generates. The majority of WTO members are developing countries. We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration. Recalling the Preamble to the Marrakesh Agreement, we shall continue to make positive efforts designed to ensure that developing countries, and especially the least-developed among them, secure a share in the growth of world trade commensurate with the needs of their economic development. In this context, enhanced market access, balanced rules, and well targeted, sustainably financed technical assistance and capacity-building programmes have important roles to play.
    3.  We recognize the particular vulnerability of the least-developed countries and the special structural difficulties they face in the global economy. We are committed to addressing the marginalization of least-developed countries in international trade and to improving their effective participation in the multilateral trading system. We recall the commitments made by ministers at our meetings in Marrakesh, Singapore and Geneva, and by the international community at the Third UN Conference on Least-Developed Countries in Brussels, to help least-developed countries secure beneficial and meaningful integration into the multilateral trading system and the global economy. We are determined that the WTO will play its part in building effectively on these commitments under the Work Programme we are establishing.
    4.  We stress our commitment to the WTO as the unique forum for global trade rule-making and liberalization, while also recognizing that regional trade agreements can play an important role in promoting the liberalization and expansion of trade and in fostering development.
    5.  We are aware that the challenges members face in a rapidly changing international environment cannot be addressed through measures taken in the trade field alone. We shall continue to work with the Bretton Woods institutions for greater coherence in global economic policy-making.
    6.  We strongly reaffirm our commitment to the objective of sustainable development, as stated in the Preamble to the Marrakesh Agreement. We are convinced that the aims of upholding and safeguarding an open and non-discriminatory multilateral trading system, and acting for the protection of the environment and the promotion of sustainable development can and must be mutually supportive. We take note of the efforts by members to conduct national environmental assessments of trade policies on a voluntary basis. We recognize that under WTO rules no country should be prevented from taking measures for the protection of human, animal or plant life or health, or of the environment at the levels it considers appropriate, subject to the requirement that they are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, and are otherwise in accordance with the provisions of the WTO Agreements. We welcome the WTO´s continued cooperation with UNEP and other inter-governmental environmental organizations. We encourage efforts to promote cooperation between the WTO and relevant international environmental and developmental organizations, especially in the lead-up to the World Summit on Sustainable Development to be held in Johannesburg, South Africa, in September 2002.
    7.  We reaffirm the right of members under the General Agreement on Trade in Services to regulate, and to introduce new regulations on, the supply of services.
    8.  We reaffirm our declaration made at the Singapore Ministerial Conference regarding internationally recognized core labour standards. We take note of work under way in the International Labour Organization (ILO) on the social dimension of globalization.
    9.  We note with particular satisfaction that this conference has completed the WTO accession procedures for China and Chinese Taipei. We also welcome the accession as new members, since our last session, of Albania, Croatia, Georgia, Jordan, Lithuania, Moldova and Oman, and note the extensive market-access commitments already made by these countries on accession. These accessions will greatly strengthen the multilateral trading system, as will those of the 28 countries now negotiating their accession. We therefore attach great importance to concluding accession proceedings as quickly as possible. In particular, we are committed to accelerating the accession of least-developed countries.
    10.  Recognizing the challenges posed by an expanding WTO membership, we confirm our collective responsibility to ensure internal transparency and the effective participation of all members. While emphasizing the intergovernmental character of the organization, we are committed to making the WTO's operations more transparent, including through more effective and prompt dissemination of information, and to improve dialogue with the public. We shall therefore at the national and multilateral levels continue to promote a better public understanding of the WTO and to communicate the benefits of a liberal, rules-based multilateral trading system.
    11.  In view of these considerations, we hereby agree to undertake the broad and balanced Work Programme set out below. This incorporates both an expanded negotiating agenda and other important decisions and activities necessary to address the challenges facing the multilateral trading system.      
    WORK PROGRAMME
    Implementation-related issues and concerns 
    12. We attach the utmost importance to the implementation-related issues and concerns raised by members and are determined to find appropriate solutions to them. In this connection, and having regard to the General Council Decisions of 3 May and 15 December 2000, we further adopt the Decision on Implementation-Related Issues and Concerns in document WT/MIN(01)/17 to address a number of implementation problems faced by members. We agree that negotiations on outstanding implementation issues shall be an integral part of the Work Programme we are establishing, and that agreements reached at an early stage in these negotiations shall be treated in accordance with the provisions of paragraph 47 below. In this regard, we shall proceed as follows: (a) where we provide a specific negotiating mandate in this declaration, the relevant implementation issues shall be addressed under that mandate; (b) the other outstanding implementation issues shall be addressed as a matter of priority by the relevant WTO bodies, which shall report to the Trade Negotiations Committee, established under paragraph 46 below, by the end of 2002 for appropriate action.   
    Agriculture 
    13.  We recognize the work already undertaken in the negotiations initiated in early 2000 under Article 20 of the Agreement on Agriculture, including the large number of negotiating proposals submitted on behalf of a total of 121 members. We recall the long-term objective referred to in the Agreement to establish a fair and market-oriented trading system through a programme of fundamental reform encompassing strengthened rules and specific commitments on support and protection in order to correct and prevent restrictions and distortions in world agricultural markets. We reconfirm our commitment to this programme. Building on the work carried out to date and without prejudging the outcome of the negotiations we commit ourselves to comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support. We agree that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development. We take note of the non-trade concerns reflected in the negotiating proposals submitted by Members and confirm that non-trade concerns will be taken into account in the negotiations as provided for in the Agreement on Agriculture.
    14.  Modalities for the further commitments, including provisions for special and differential treatment, shall be established no later than 31 March 2003. Participants shall submit their comprehensive draft Schedules based on these modalities no later than the date of the Fifth Session of the Ministerial Conference. The negotiations, including with respect to rules and disciplines and related legal texts, shall be concluded as part and at the date of conclusion of the negotiating agenda as a whole.   
    Services 
    15.  The negotiations on trade in services shall be conducted with a view to promoting the economic growth of all trading partners and the development of developing and least-developed countries. We recognize the work already undertaken in the negotiations, initiated in January 2000 under Article XIX of the General Agreement on Trade in Services, and the large number of proposals submitted by members on a wide range of sectors and several horizontal issues, as well as on movement of natural persons. We reaffirm the Guidelines and Procedures for the Negotiations adopted by the Council for Trade in Services on 28 March 2001 as the basis for continuing the negotiations, with a view to achieving the objectives of the General Agreement on Trade in Services, as stipulated in the Preamble, Article IV and Article XIX of that Agreement. Participants shall submit initial requests for specific commitments by 30 June 2002 and initial offers by 31 March 2003.   
    Market access for non-agricultural products 
    16.  We agree to negotiations which shall aim, by modalities to be agreed, to reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries. Product coverage shall be comprehensive and without a priori exclusions. The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments, in accordance with the relevant provisions of Article XXVIII bis of GATT 1994 and the provisions cited in paragraph 50 below. To this end, the modalities to be agreed will include appropriate studies and capacity-building measures to assist least-developed countries to participate effectively in the negotiations.
        
    Trade-related aspects of intellectual property rights 
    17.  We stress the importance we attach to implementation and interpretation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) in a manner supportive of public health, by promoting both access to existing medicines and research and development into new medicines and, in this connection, are adopting a separate declaration.
    18.  With a view to completing the work started in the Council for Trade-Related Aspects of Intellectual Property Rights (Council for TRIPS) on the implementation of Article 23.4, we agree to negotiate the establishment of a multilateral system of notification and registration of geographical indications for wines and spirits by the Fifth Session of the Ministerial Conference. We note that issues related to the extension of the protection of geographical indications provided for in Article 23 to products other than wines and spirits will be addressed in the Council for TRIPS pursuant to paragraph 12 of this declaration.
    19.  We instruct the Council for TRIPS, in pursuing its work programme including under the review of Article 27.3(b), the review of the implementation of the TRIPS Agreement under Article 71.1 and the work foreseen pursuant to paragraph 12 of this declaration, to examine, inter alia, the relationship between the TRIPS Agreement and the Convention on Biological Diversity, the protection of traditional knowledge and folklore, and other relevant new developments raised by members pursuant to Article 71.1. In undertaking this work, the TRIPS Council shall be guided by the objectives and principles set out in Articles 7 and 8 of the TRIPS Agreement and shall take fully into account the development dimension.
      
    Relationship between trade and investment 
    20.  Recognizing the case for a multilateral framework to secure transparent, stable and predictable conditions for long-term cross-border investment, particularly foreign direct investment, that will contribute to the expansion of trade, and the need for enhanced technical assistance and capacity-building in this area as referred to in paragraph 21, we agree that negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that session on modalities of negotiations.
    21.  We recognize the needs of developing and least-developed countries for enhanced support for technical assistance and capacity building in this area, including policy analysis and development so that they may better evaluate the implications of closer multilateral cooperation for their development policies and objectives, and human and institutional development. To this end, we shall work in cooperation with other relevant intergovernmental organisations, including UNCTAD, and through appropriate regional and bilateral channels, to provide strengthened and adequately resourced assistance to respond to these needs.
    22.  In the period until the Fifth Session, further work in the Working Group on the Relationship Between Trade and Investment will focus on the clarification of: scope and definition; transparency; non-discrimination; modalities for pre-establishment commitments based on a GATS-type, positive list approach; development provisions; exceptions and balance-of-payments safeguards; consultation and the settlement of disputes between members. Any framework should reflect in a balanced manner the interests of home and host countries, and take due account of the development policies and objectives of host governments as well as their right to regulate in the public interest. The special development, trade and financial needs of developing and least-developed countries should be taken into account as an integral part of any framework, which should enable members to undertake obligations and commitments commensurate with their individual needs and circumstances. Due regard should be paid to other relevant WTO provisions. Account should be taken, as appropriate, of existing bilateral and regional arrangements on investment.
      
    Interaction between trade and competition policy 
    23.  Recognizing the case for a multilateral framework to enhance the contribution of competition policy to international trade and development, and the need for enhanced technical assistance and capacity-building in this area as referred to in paragraph 24, we agree that negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that session on modalities of negotiations.
    24.  We recognize the needs of developing and least-developed countries for enhanced support for technical assistance and capacity building in this area, including policy analysis and development so that they may better evaluate the implications of closer multilateral cooperation for their development policies and objectives, and human and institutional development. To this end, we shall work in cooperation with other relevant intergovernmental organisations, including UNCTAD, and through appropriate regional and bilateral channels, to provide strengthened and adequately resourced assistance to respond to these needs.
    25.  In the period until the Fifth Session, further work in the Working Group on the Interaction between Trade and Competition Policy will focus on the clarification of: core principles, including transparency, non-discrimination and procedural fairness, and provisions on hardcore cartels; modalities for voluntary cooperation; and support for progressive reinforcement of competition institutions in developing countries through capacity building. Full account shall be taken of the needs of developing and least-developed country participants and appropriate flexibility provided to address them.   
    Transparency in government procurement 
    26.  Recognizing the case for a multilateral agreement on transparency in government procurement and the need for enhanced technical assistance and capacity building in this area, we agree that negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that session on modalities of negotiations. These negotiations will build on the progress made in the Working Group on Transparency in Government Procurement by that time and take into account participants’ development priorities, especially those of least-developed country participants. Negotiations shall be limited to the transparency aspects and therefore will not restrict the scope for countries to give preferences to domestic supplies and suppliers. We commit ourselves to ensuring adequate technical assistance and support for capacity building both during the negotiations and after their conclusion.   
    Trade facilitation 
    27.  Recognizing the case for further expediting the movement, release and clearance of goods, including goods in transit, and the need for enhanced technical assistance and capacity building in this area, we agree that negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that session on modalities of negotiations. In the period until the Fifth Session, the Council for Trade in Goods shall review and as appropriate, clarify and improve relevant aspects of Articles V, VIII and X of the GATT 1994 and identify the trade facilitation needs and priorities of members, in particular developing and least-developed countries. We commit ourselves to ensuring adequate technical assistance and support for capacity building in this area.   
    WTO rules 
    28.  In the light of experience and of the increasing application of these instruments by members, we agree to negotiations aimed at clarifying and improving disciplines under the Agreements on Implementation of Article VI of the GATT 1994 and on Subsidies and Countervailing Measures, while preserving the basic concepts, principles and effectiveness of these Agreements and their instruments and objectives, and taking into account the needs of developing and least-developed participants. In the initial phase of the negotiations, participants will indicate the provisions, including disciplines on trade distorting practices, that they seek to clarify and improve in the subsequent phase. In the context of these negotiations, participants shall also aim to clarify and improve WTO disciplines on fisheries subsidies, taking into account the importance of this sector to developing countries. We note that fisheries subsidies are also referred to in paragraph 31.
    29.  We also agree to negotiations aimed at clarifying and improving disciplines and procedures under the existing WTO provisions applying to regional trade agreements. The negotiations shall take into account the developmental aspects of regional trade agreements.   
    Dispute Settlement Understanding 
    30.  We agree to negotiations on improvements and clarifications of the Dispute Settlement Understanding. The negotiations should be based on the work done thus far as well as any additional proposals by members, and aim to agree on improvements and clarifications not later than May 2003, at which time we will take steps to ensure that the results enter into force as soon as possible thereafter.   
    Trade and environment 
    31.  With a view to enhancing the mutual supportiveness of trade and environment, we agree to negotiations, without prejudging their outcome, on:
    (i) the relationship between existing WTO rules and specific trade obligations set out in multilateral environmental agreements (MEAs). The negotiations shall be limited in scope to the applicability of such existing WTO rules as among parties to the MEA in question. The negotiations shall not prejudice the WTO rights of any Member that is not a party to the MEA in question;
    (ii) procedures for regular information exchange between MEA Secretariats and the relevant WTO committees, and the criteria for the granting of observer status;
    (iii) the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services.
    We note that fisheries subsidies form part of the negotiations provided for in paragraph 28.
    32.  We instruct the Committee on Trade and Environment, in pursuing work on all items on its agenda within its current terms of reference, to give particular attention to:
    (i) the effect of environmental measures on market access, especially in relation to developing countries, in particular the least-developed among them, and those situations in which the elimination or reduction of trade restrictions and distortions would benefit trade, the environment and development;
    (ii) the relevant provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights; and
    (iii) labelling requirements for environmental purposes.
    Work on these issues should include the identification of any need to clarify relevant WTO rules. The Committee shall report to the Fifth Session of the Ministerial Conference, and make recommendations, where appropriate, with respect to future action, including the desirability of negotiations. The outcome of this work as well as the negotiations carried out under paragraph 31(i) and (ii) shall be compatible with the open and non-discriminatory nature of the multilateral trading system, shall not add to or diminish the rights and obligations of members under existing WTO agreements, in particular the Agreement on the Application of Sanitary and Phytosanitary Measures, nor alter the balance of these rights and obligations, and will take into account the needs of developing and least-developed countries.
    33.  We recognize the importance of technical assistance and capacity building in the field of trade and environment to developing countries, in particular the least-developed among them. We also encourage that expertise and experience be shared with members wishing to perform environmental reviews at the national level. A report shall be prepared on these activities for the Fifth Session.   
    Electronic commerce
    34.  We take note of the work which has been done in the General Council and other relevant bodies since the Ministerial Declaration of 20 May 1998 and agree to continue the Work Programme on Electronic Commerce. The work to date demonstrates that electronic commerce creates new challenges and opportunities for trade for members at all stages of development, and we recognize the importance of creating and maintaining an environment which is favourable to the future development of electronic commerce. We instruct the General Council to consider the most appropriate institutional arrangements for handling the Work Programme, and to report on further progress to the Fifth Session of the Ministerial Conference. We declare that members will maintain their current practice of not imposing customs duties on electronic transmissions until the Fifth Session.   
    Small economies
    35.  We agree to a work programme, under the auspices of the General Council, to examine issues relating to the trade of small economies. The objective of this work is to frame responses to the trade-related issues identified for the fuller integration of small, vulnerable economies into the multilateral trading system, and not to create a sub-category of WTO Members. The General Council shall review the work programme and make recommendations for action to the Fifth Session of the Ministerial Conference.   

    36.  We agree to an examination, in a Working Group under the auspices of the General Council, of the relationship between trade, debt and finance, and of any possible recommendations on steps that might be taken within the mandate and competence of the WTO to enhance the capacity of the multilateral trading system to contribute to a durable solution to the problem of external indebtedness of developing and least-developed countries, and to strengthen the coherence of international trade and financial policies, with a view to safeguarding the multilateral trading system from the effects of financial and monetary instability. The General Council shall report to the Fifth Session of the Ministerial Conference on progress in the examination.   
    37.  We agree to an examination, in a Working Group under the auspices of the General Council, of the relationship between trade and transfer of technology, and of any possible recommendations on steps that might be taken within the mandate of the WTO to increase flows of technology to developing countries. The General Council shall report to the Fifth Session of the Ministerial Conference on progress in the examination.   
    Technical cooperation and capacity building 
    38.  We confirm that technical cooperation and capacity building are core elements of the development dimension of the multilateral trading system, and we welcome and endorse the New Strategy for WTO Technical Cooperation for Capacity Building, Growth and Integration. We instruct the Secretariat, in coordination with other relevant agencies, to support domestic efforts for mainstreaming trade into national plans for economic development and strategies for poverty reduction. The delivery of WTO technical assistance shall be designed to assist developing and least-developed countries and low-income countries in transition to adjust to WTO rules and disciplines, implement obligations and exercise the rights of membership, including drawing on the benefits of an open, rules-based multilateral trading system. Priority shall also be accorded to small, vulnerable, and transition economies, as well as to members and observers without representation in Geneva. We reaffirm our support for the valuable work of the International Trade Centre, which should be enhanced.
    39.  We underscore the urgent necessity for the effective coordinated delivery of technical assistance with bilateral donors, in the OECD Development Assistance Committee and relevant international and regional intergovernmental institutions, within a coherent policy framework and timetable. In the coordinated delivery of technical assistance, we instruct the Director-General to consult with the relevant agencies, bilateral donors and beneficiaries, to identify ways of enhancing and rationalizing the Integrated Framework for Trade-Related Technical Assistance to Least-Developed Countries and the Joint Integrated Technical Assistance Programme (JITAP).
    40.  We agree that there is a need for technical assistance to benefit from secure and predictable funding. We therefore instruct the Committee on Budget, Finance and Administration to develop a plan for adoption by the General Council in December 2001 that will ensure long-term funding for WTO technical assistance at an overall level no lower than that of the current year and commensurate with the activities outlined above.
    41.  We have established firm commitments on technical cooperation and capacity building in various paragraphs in this Ministerial Declaration. We reaffirm these specific commitments contained in paragraphs 16, 21, 24, 26, 27, 33, 38-40, 42 and 43, and also reaffirm the understanding in paragraph 2 on the important role of sustainably financed technical assistance and capacity-building programmes. We instruct the Director-General to report to the Fifth Session of the Ministerial Conference, with an interim report to the General Council in December 2002 on the implementation and adequacy of these commitments in the identified paragraphs.   
    Least-developed countries 
    42.  We acknowledge the seriousness of the concerns expressed by the least-developed countries (LDCs) in the Zanzibar Declaration adopted by their ministers in July 2001. We recognize that the integration of the LDCs into the multilateral trading system requires meaningful market access, support for the diversification of their production and export base, and trade-related technical assistance and capacity building. We agree that the meaningful integration of LDCs into the trading system and the global economy will involve efforts by all WTO members. We commit ourselves to the objective of duty-free, quota-free market access for products originating from LDCs. In this regard, we welcome the significant market access improvements by WTO members in advance of the Third UN Conference on LDCs (LDC-III), in Brussels, May 2001. We further commit ourselves to consider additional measures for progressive improvements in market access for LDCs. Accession of LDCs remains a priority for the Membership. We agree to work to facilitate and accelerate negotiations with acceding LDCs. We instruct the Secretariat to reflect the priority we attach to LDCs’ accessions in the annual plans for technical assistance. We reaffirm the commitments we undertook at LDC-III, and agree that the WTO should take into account, in designing its work programme for LDCs, the trade-related elements of the Brussels Declaration and Programme of Action, consistent with the WTO’s mandate, adopted at LDC-III. We instruct the Sub-Committee for Least-Developed Countries to design such a work programme and to report on the agreed work programme to the General Council at its first meeting in 2002.
    43.  We endorse the Integrated Framework for Trade-Related Technical Assistance to Least-Developed Countries (IF) as a viable model for LDCs’ trade development. We urge development partners to significantly increase contributions to the IF Trust Fund and WTO extra-budgetary trust funds in favour of LDCs. We urge the core agencies, in coordination with development partners, to explore the enhancement of the IF with a view to addressing the supply-side constraints of LDCs and the extension of the model to all LDCs, following the review of the IF and the appraisal of the ongoing Pilot Scheme in selected LDCs. We request the Director-General, following coordination with heads of the other agencies, to provide an interim report to the General Council in December 2002 and a full report to the Fifth Session of the Ministerial Conference on all issues affecting LDCs.   
    Special and differential treatment 
    44.  We reaffirm that provisions for special and differential treatment are an integral part of the WTO Agreements. We note the concerns expressed regarding their operation in addressing specific constraints faced by developing countries, particularly least-developed countries. In that connection, we also note that some members have proposed a Framework Agreement on Special and Differential Treatment (WT/GC/W/442). We therefore agree that all special and differential treatment provisions shall be reviewed with a view to strengthening them and making them more precise, effective and operational. In this connection, we endorse the work programme on special and differential treatment set out in the Decision on Implementation-Related Issues and Concerns.   
    Organization and management of the work programme 
    45.  The negotiations to be pursued under the terms of this declaration shall be concluded not later than 1 January 2005. The Fifth Session of the Ministerial Conference will take stock of progress in the negotiations, provide any necessary political guidance, and take decisions as necessary. When the results of the negotiations in all areas have been established, a Special Session of the Ministerial Conference will be held to take decisions regarding the adoption and implementation of those results.
    46.  The overall conduct of the negotiations shall be supervised by a Trade Negotiations Committee under the authority of the General Council. The Trade Negotiations Committee shall hold its first meeting not later than 31 January 2002. It shall establish appropriate negotiating mechanisms as required and supervise the progress of the negotiations.
    47.  With the exception of the improvements and clarifications of the Dispute Settlement Understanding, the conduct, conclusion and entry into force of the outcome of the negotiations shall be treated as parts of a single undertaking. However, agreements reached at an early stage may be implemented on a provisional or a definitive basis. Early agreements shall be taken into account in assessing the overall balance of the negotiations.
    48.  Negotiations shall be open to:
    (i) all members of the WTO; and
    (ii) States and separate customs territories currently in the process of accession and those that inform members, at a regular meeting of the General Council, of their intention to negotiate the terms of their membership and for whom an accession working party is established.
    Decisions on the outcomes of the negotiations shall be taken only by WTO members.
    49.  The negotiations shall be conducted in a transparent manner among participants, in order to facilitate the effective participation of all. They shall be conducted with a view to ensuring benefits to all participants and to achieving an overall balance in the outcome of the negotiations.
    50.  The negotiations and the other aspects of the Work Programme shall take fully into account the principle of special and differential treatment for developing and least-developed countries embodied in: Part IV of the GATT 1994; the Decision of 28 November 1979 on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries; the Uruguay Round Decision on Measures in Favour of Least-Developed Countries; and all other relevant WTO provisions.
    51.  The Committee on Trade and Development and the Committee on Trade and Environment shall, within their respective mandates, each act as a forum to identify and debate developmental and environmental aspects of the negotiations, in order to help achieve the objective of having sustainable development appropriately reflected.
    52.  Those elements of the Work Programme which do not involve negotiations are also accorded a high priority. They shall be pursued under the overall supervision of the General Council, which shall report on progress to the Fifth Session of the Ministerial Conference.
  • TRIPS and public health 
    An issue that has arisen recently is how to ensure patent protection for pharmaceutical products does not prevent people in poor countries from having access to medicines — while at the same time maintaining the patent system’s role in providing incentives for research and development into new medicines.
    Flexibilities such as “compulsory licensing” are written into the TRIPS Agreement — governments can issue compulsory licenses to allow a competitor to produce the product or use the process under licence, but only under certain conditions aimed at safeguarding the legitimate interests of the patent holder.
    Parallel importing is also possible. This is where a product sold by the patent owner more cheaply in one country is imported into another without the patent holder’s permission. Countries’ laws differ on whether they allow parallel imports. The TRIPS Agreement simply states that governments cannot bring legal disputes to the WTO on this issue.
    (These flexibilities do not have to be put into practice. They are sometimes used as a means of bargaining. For example the threat of a compulsory licence can encourage a patent holder to reduce the price.)
    But some governments were unsure of how these flexibilities would be interpreted, and how far their right to use them would be respected. The African Group (all the African members of the WTO) were among the members pushing for clarification.

    The Doha mandate 
    A large part of this was settled when WTO ministers issued a specialDeclaration on TRIPS and Public Health at the Doha Ministerial Conference in November 2001.
    In the main declaration, they stressed that it is important to implement and interpret the TRIPS Agreement in a way that supports public health — by promoting both access to existing medicines and the creation of new medicines.
    In the separate declaration, they agreed that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health.
    They underscored countries’ ability to use the flexibilities that are built into the TRIPS Agreement, in particular compulsory licensing and parallel importing.
    And they agreed to extend exemptions on pharmaceutical patent protection for least-developed countries until 2016. (The TRIPS Council completed the legal drafting task on this in mid—2002.)
    On one remaining question, they assigned further work to the TRIPS Council — to sort out how to provide extra flexibility, so that countries unable to produce pharmaceuticals domestically can import patented drugs made under compulsory licensing. (This is sometimes called the “Paragraph 6” issue, because it comes under that paragraph in the separate Doha declaration on TRIPS and health.)
    The issue arises because Article 31(f) of the TRIPS Agreement says products made under compulsory licensing must be “predominantly for the supply of the domestic market”. This applies directly to countries that can manufacture drugs — it limits the amount they can export when the drug is made under compulsory licence. And it has an indirect impact on countries unable to make medicines and therefore wanting to import generics. They would find it difficult to find countries that can to supply them with drugs made under compulsory licensing.
    The TRIPS Council had to find a solution and report to the General Council on this by the end of 2002.

    Since then … 
    After almost a year of discussion and negotiation, the TRIPS Council considered a draft decision at the end of December 2002. The draft received very wide support. But there was no consensus and at the time of writing the issue remains unresolved.
    The 16 December 2002 draft takes the form of a waiver. It would allow countries that can make drugs to export drugs made under compulsory licence to countries that cannot manufacture them.
    The waiver would last until the TRIPS Agreement is amended. It would include provisions on transparency (which would give a patent-owner some opportunity to react by offering a lower price), and special packaging and other methods to avoid the medicines being diverted to rich-country markets. An annex would describe what a country needs to do in order to declare itself unable to make the pharmaceuticals domestically. And over 20 developed countries would announce that they would not import under this decision.
    Almost all members said that in the spirit of compromise they could join a consensus supporting the 16 December 2002 draft, even though most of them felt the text was far from ideal.
    Developing countries had various concerns, mainly about what they considered to be burdensome conditions, such as on transparency and preventing the medicines being diverted to the wrong markets. Developed countries were concerned that the decision did not go far enough in preventing the medicines being diverted to the wrong markets. Some said they would have preferred a different legal route.
    At least one country, the United States, said the draft was too open-ended on the range of diseases the decision would cover.
    The draft decision refers to drugs needed to address the public health problems recognized in Paragraph 1 of the original declaration that ministers issued in Doha. This says: “We recognize the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics.”
    Further attempts to break the deadlock took place in January and February 2003, but they failed. Since then, discussions have taken place outside the WTO.
    The issue remained on the TRIPS Council’s agenda, and at the 4—5 June 2003 meeting, the chairperson concluded that he intended to remain in close contact with delegations, with a view to resuming consultations as soon as developments show that this would be useful. He urged delegations to continue to dialogue with each other, and to look for ways of resolving the final problems in the text of 16 December 2002. He stressed the desirability of finding a multilateral solution before the Cancún Ministerial Conference, preferably in time for the 24 July General Council meeting, when the TRIPS Council, like other subsidiary bodies, was expected to report, before the Ministerial Conference.

    Geographical indications in general 
    Geographical indications are place names (in some countries also words associated with a place) used to identify the origin and quality, reputation or other characteristics of products (for example, “Champagne”, “Tequila” or “Roquefort”). Protection required under the TRIPS Agreement is defined in two articles.
    All products are covered by Article 22, which defines a standard level of protection. This says geographical indications have to be protected in order to avoid misleading the public and to prevent unfair competition.
    Article 23 provides a higher or enhanced level of protection for geographical indications for wines and spirits (subject to a number of exceptions, they have to be protected even if misuse would not cause the public to be misled). A number of countries want to extend this level of protection to a wide range of other products, including food and handicrafts. Among the exceptions that the agreement allows are: when a name has become a common (or “generic”) term (for example, “cheddar” now refers to a particular type of cheese not necessarily made in Cheddar, in the UK), and when a term has already been registered as a trademark (for example, in Italy “Parma” is a type of ham from the region of the city of Parma, but in Canada it is a registered trademark for ham made by a Canadian company).
    Information that members have supplied during a fact-finding exercise shows that countries employ a wide variety of legal means to protect geographical indications: ranging from specific geographical indications laws to trademark law, consumer protection law, or common law. The TRIPS Agreement and current TRIPS work in the WTO takes account of that diversity.
    Two issues are debated under the Doha mandate: creating a multilateral register for wines and spirits; and extending the higher (Article 23) level of protection beyond wines and spirits. Both are as contentious as any other subject on the Doha agenda.

    Geographical indications 1:the multilateral register for wines and spirits 

    This negotiation, which takes place in dedicated “special sessions” of the TRIPS Council, deals with wines and spirits, which are given a higher level of protection for geographical indications (TRIPS Article 23) than other products (which are protected under Article 22). This means the wines’ and spirits’ names should, in principle, be protected even if there is no risk of misleading consumers or of unfair competition.
    The negotiations for creating a multilateral register for geographical indications for wines and spirits are required under Article 23.4 of the TRIPS Agreement. Work began in July 1997, but the negotiations are now under the Doha Agenda (the Doha Declaration’s paragraph 18). They are separate from the question of whether the higher level of protection given to wines and spirits should be extended to other products, although some countries have said they want the higher level of protection to be extended to other products and the register to cover those other products.
    The Doha mandate 
    The WTO TRIPS Council had already started work on a multilateral registration system for geographical indications for wines and spirits over four years before the Doha meeting. The Doha Declaration sets a deadline for completing the negotiations: the Fifth Ministerial Conference in 2003.
     
    Since then …
    Two sets of proposals have been submitted over the years, representing the two main lines of argument in the negotiations. The latest are (documents downloadable from Documents Online http://docsonline.wto.org on the WTO website):
    The “joint paper”, documents: TN/IP/W/5 from Argentina, Australia, Canada, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Japan, Namibia, New Zealand, the Philippines, Chinese Taipei and the US; and TN/IP/W/6, a communication from Argentina, Australia, Canada, Chile, New Zealand and the US. This group proposes a voluntary system where notified geographical indications would be registered in a database. Those governments choosing to participate would have to consult the database when taking decisions on protection in their countries. Non-participating members would be “encouraged” but “not obliged” to consult the database.
    The “EU proposal” (document IP/C/W/107/Rev.1) whose objectives have been supported in document TN/IP/W/3 signed by Bulgaria, Cyprus, the Czech Republic, the EU, Georgia, Hungary, Iceland, Malta, Mauritius, Moldova, Nigeria, Romania, the Slovak Republic, Slovenia, Sri Lanka, Switzerland and Turkey. This proposes that the registration would establish a “presumption” that the geographical indication is to be protected in all other countries — a presumption that can be challenged on certain grounds. The TRIPS Agreement allows some exceptions to the obligation to protect geographical indications, for example if a term has become generic or if it does not fit the definition of a geographical indication. Under the EU proposal, once a term has been registered, no country could refuse protection on these grounds, unless it had challenged the term within 18 months. Hungary has a slightly modified proposal with an arbitration system to settle differences (document IP/C/W/255)
    Hong Kong, China has recently proposed a compromise in which registering a term would enjoy a less limited “presumption” in participating countries than under the EU proposal (documentTN/IP/W/8).
    The Secretariat has produced a document compiling the various positions so far: TN/IP/W/7/Rev.1, dated 23 May 2003 (with a correction,TN/IP/W/7/Rev.1/Corr.1 dated 20 June), also available on Documents Online (http://docsonline.wto.org).
    At the heart of the debate are a number of key questions. What legal effect, if any, would a registration system need to have within member countries, if the register is to serve the purpose of “facilitating protection” (the phrase used in Article 23.4)? And to what extent, if at all, should the effect apply to countries not participating in the system. There is also the question of the administrative and financial costs for individual governments and whether they would outweigh the possible benefits.
    Opinions are strongly held on both sides of the debate, with some highly detailed arguments presented by both sides.

    The draft text 
    The chairperson circulated a “draft text” on 16 April 2003. This was discussed for the first time at the 29—30 April meeting and continued in June and July. Where members differ strongly, the text includes options, A, B, and B1 and B2.
    “A” represents the “joint paper” (TN/IP/W/5) by the US, Canada, Australia, Chile, Argentina, Japan and others (full list above).
    “B” represents the Europeans. This is further split into two variants:
    “B1”: the EU version, where a challenge is handled by bilateral consultations. If the question remains unresolved, the challenging country does not have to protect the geographical indication.
    “B2”: the Hungarian proposal (supported by Switzerland), which proposes settling unresolved challenges by arbitration.
    As an idea of what the paper contains, its headings are:
    Preamble
    Participation
    Notification (substantive conditions, contents, language, form, circulation and publication)
    Registration (with options A, B, B1 and B2 on challenge, etc)
    Legal effects in participating members (with options A, B, B1 and B2)
    Legal effects in non-participating members (with options A, B, B1 and B2)
    Legal effects in least-developed country members
    Modifications of notifications and registrations
    Withdrawals
    Fees and costs
    Contact point
    Headings not yet containing draft text deal with: the committee or other body responsible for the system, the administering body (e.g. the WTO or WIPO Secretariat), how to withdraw from the system, reviews, and when the system would start to operate.
    Since the June meeting, the chairperson has continued consultations. The deadline for agreement is the Cancún Ministerial Conference.
     
    Geographical indications 2:extending the “higher level of protection” beyond wines and spirits back to top
    A number of countries want to negotiate extending to other products the higher level of protection (Article 23) currently given to wines and spirits. Others oppose the move, and the debate in the TRIPS Council has included the question of whether the Doha Declaration provides a mandate for negotiations.
    The issue is linked to the agriculture negotiations. Some countries have said that progress in this aspect of geographical indications would make it easier for them to agree to a significant deal in agriculture. Others reject the view that the Doha Declaration makes this part of the balance of the negotiations. At the same time, the European Union has also proposed negotiating the protection of specific names of specific agricultural products as part of the agriculture negotiations.
     
    The Doha mandate
    The Doha Declaration notes that the TRIPS Council will handle this under the declaration’s paragraph 12 (which deals with implementation issues). Paragraph 12 says “negotiations on outstanding implementation issues shall be an integral part” of the Doha work programme. Where there is not a specific negotiating mandate in the Doha Declaration, implementation issues “shall be addressed as a matter of priority by the relevant WTO bodies, which shall report to the Trade Negotiations Committee [TNC], established under paragraph 46 below, by the end of 2002 for appropriate action.”
    Delegations interpret Paragraph 12 differently. Many developing and European countries argue that the so-called outstanding implementation issues are already part of the negotiation and its package of results (the “single undertaking”). Others argue that these issues can only become negotiating subjects if the Trade Negotiations Committee decides to include them in the talks — and so far it has not done so.

    Reviews of TRIPS provisions: particularly Art.27.3(b), biodiversity and traditional knowledge 
    Two reviews have been taking place in the TRIPS Council, as required by the TRIPS Agreement: a review of Article 27.3(b) which deals with patentability or non-patentability of plant and animal inventions, and the protection of plant varieties, and a review of the entire TRIPS Agreement (required by Article 71.1).
    Article 27 of the TRIPS Agreement defines the types of inventions which have to be eligible for patent protection and those which can be exempt. These include both products and processes, and they generally cover all fields of technology.
    ‘Patentable inventions’
    In general, inventions eligible for patenting must be new, involve an inventive step (or be non-obvious) and be capable of industrial application (or be useful). Article 27 also lists inventions which governments do not have to make eligible for patent protection.
    Part (b) of paragraph 3 (i.e. Article 27.3(b)) covers biotechnological inventions. It is currently under review in the TRIPS Council, as required by the TRIPS Agreement. Some countries have broadened the discussion to cover biodiversity and traditional knowledge. The Doha Declaration has linked these issues.
    Broadly speaking, Article 27.3(b) allows governments to exclude plants, animals and “essentially” biological processes (but micro-organisms, and non-biological and microbiological processes have to be eligible for patents). However, plant varieties have to be eligible either for patent protection or through a system created specifically for the purpose (“sui generis”), or a combination of the two. For example, many countries have enact a plant varieties protection law based on a model of the International Union for the Protection of New Varieties of Plants (UPOV).

    The review of the TRIPS Agreement (under Article 71.1)
    There has been very little discussion and no proposals on this under the Doha agenda.
     
    Non-violation complaints (Article 64.2)
    In principle, disputes in the WTO involve allegations that a country has violated an agreement or broken a commitment.
    Under the goods agreement (GATT) and the services (GATS) specific commitments, countries can complain to the Dispute Settlement Body if they can show that they have been deprived of an expected benefit because of some governmental action (for example a new production subsidy on an item on which a tariff concession has been made), or because of any other situation — even if these do not violate an agreement. The purpose of allowing these “non-violation” cases is to preserve the balance of benefits (such as market-access opportunities) struck during multilateral negotiations.
    The TRIPS Agreement (Article 64.2) temporarily banned non-violation disputes. It says non-violation complaints cannot be brought to the WTO dispute settlement procedure during the first five years of the WTO Agreement (i.e. 1995—99). (This was extended in Doha.)
    At the same time, the TRIPS Council has discussed whether non-violation complaints should be allowed in intellectual property, and if so, to what extent and how (“scope and modalities”) they could be brought to the WTO’s dispute settlement procedures.
    At least two countries (the US and Switzerland) say non-violation cases should be allowed in order to discourage members from engaging in “creative legislative activity” that would allow them to get around their TRIPS commitments. Most would like to see the ban continued or made permanent. Some have suggested additional safeguards.
     
    The Doha mandate 
    The Doha Decision on Implementation-Related Issues and Concerns (in Paragraph 11.1) instructs the TRIPS Council to make a recommendation to the Cancún Ministerial Conference. Until then, members have agreed not to file non-violation complaints under TRIPS.
    In May 2003, the TRIPS Council chairperson listed four possibilities for a recommendation: (1) banning non-violation complaints in TRIPS completely, (2) allowing the complaints to be handled under the WTO’s dispute settlement rules, (3) allowing non-violation complaints but subject to special “modalities” (i.e. ways of dealing with them), and (4) extending the moratorium.
    In response, most members favoured banning non-violation complaints completely (option 1), or extending the moratorium (option 4).
    However, no consensus was possible, and further work is need to prepare for a decision in Cancún.
     
    Technology transfer 
    Developing countries, in particular, see technology transfer as part of the bargain in which they have agreed to protect intellectual property rights. The TRIPS Agreement includes a number of provisions on this. For example, it requires developed countries’ governments to provide incentives for their companies to transfer technology to least-developed countries (Article 66.2).
    Least-developed countries want this requirement to be made more effective. In Doha, ministers agreed that the TRIPS Council would “put in place a mechanism for ensuring the monitoring and full implementation of the obligations”. The council adopted a decision setting up this mechanism in February 2003. It details the information developed countries are to supply by the end of the year, on how their incentives are functioning in practice.
    This is now being implemented, and will be reviewed in full when the TRIPS Council meets in November 2003. At the same time, the question of technology transfer continues to be raised under various TRIPS headings such as TRIPS and Public Health.
  • Resolve to complete the Doha Work programme fully, and to conclude negotiations in 2006.
    To Establish modalities in agriculture and non-agriculture market access (NAMA) by April 30, 2006 and prepare draft Schedules by July 31, 2006.
    To Eliminate export subsidies in agriculture by 2013, with a substantial part in the first half of the implementation period. Developing countries without Aggregate Measurement of Support (AMS), such as India, will be exempt from reductions in de minimis and the overall cut in trade distorting domestic support, consisting of AMS, the Blue box and De minimis, that is entitlement to provide
  • One of the most dramatic events that have taken place in later part of 20th century was culmination of GATT 1947 into WTO (The world Trade organization), which came into being on 1st January 2005. This WTO has set expectations high in various member countries (by now 149 including latest addition of Saudi Arabia) regarding spurt in world trade where India has insignificant share in the pie-Only 0.75% at the most. Even in IT exports the share of Indian exporters is just peanuts in view of overall world market.
    Since formation of WTO there have been regular meetings of Ministerial Conferences (Highest Policy level body of WTO) religiously every 2 years and 8 such meetings have taken place while world prepares for the 9th conference will take place shortly.
    While 5th meet at Cancun, Mexico was more or less failure, the earlier one at Seattle, USA was received with brickbats from environmentalist and Labor union Groups protesting against WTO regime.
    It is statistical fact that world trade has definitely grown since 1995 thereby giving indicators that international trade reforms do play important role in boosting economic development of various countries.
    Problems facing India in WTO & its Implementation:
    But there are several problems facing these Multilateral Trade agreements:
    - Predominance of developed nations in negotiations extracting more benefits from developing and least developed countries
    - Resource and skill limitations of smaller countries to understand and negotiate under rules of various agreements under WTO
    - Incompatibility of developed and developing countries resource sizes thereby causing distortions in implementing various decisions
    - Questionable effectiveness in implementation of agreements reached in past and sincerity
    - Non-tariff barriers being created by developed nations.
    - Regional cooperation groups posing threat to utility of WTO agreement itself, which is multilateral encompassing all member countries
    - Poor implementation of Doha Development Agenda
    - Agriculture seems to be bone of contention for all types of countries where France, Japan and some countries are just not willing to budge downwards in matter of domestic support and export assistance to farmers and exporters of agriculture produce.
    - Dismantling of MFA (Multi Fiber Agreement) and its likely impact on countries like India
    - Under TRIPS question of high cost of Technology transfer, Bio Diversity protection, protection of Traditional Knowledge and Folk arts, protection of Bio Diversities and geographical Indications of origin, for example Basmati, Mysore Dosa or Champagne. The protection has been given so far in wines and spirits that suit US and European countries.
    Implications for India
    It appears that India does not stand to gain much by shouting for agriculture reforms in developed countries because the overall tariff is lower in those countries. India will have to tart major reforms in agriculture sector in India to make Agriculture globally competitive. Same way it is questionable if India will be major beneficiary in dismantling of quotas, which were available under MFA for market access in US and some EU countries. It is likely that China, Germany, North African countries, Mexico and such others may reap benefit in textiles and Clothing areas unless India embarks upon major reforms in modernization and up gradation of textile sector including apparels.
    Some of Singapore issues are also important like Government procure, Trade and Investment, Trade facilitation and market access mechanism.
    In Pharma-sector there is need for major investments in R &D and mergers and restructuring of companies to make them world class to take advantage. India has already amended patent Act and both product and Process are now patented in India. However, the large number of patents going off in USA recently, gives the Indian Drug companies windfall opportunities, if tapped intelligently. Some companies in India have organized themselves for this.
    Excerpts from Speech of Ramkrishna Hegde, the then Minister, at Geneva in 1998-
    "In order to make WTO an effective multilateral body, which serves the objectives for which it was set up, it is necessary to go back to the basic principles. The Uruguay Round negotiators had stated their intentions quite clearly in the Preamble to the Marrakesh Agreement establishing the WTO. They recognised "that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development. They recognized also "that there is need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development".
    The Objective of WTO Reiterated:
    It is very clear that the intention of the negotiators was to use trade as an instrument for development, to raise standards of living, expand production, keeping in view, particularly, the needs of developing countries and least-developed countries. The WTO must never lose sight of this basic principle. Every act of implementation and of negotiation, every legal decision, has to be viewed in this context. Trade, as an instrument for development, should be the cornerstone of all our deliberations, decisions and actions. Besides, the system should be seen to be equitable and fair. It must be used in such a manner that the letter and spirit of the Agreements is fully observed. The WTO Members must mutually support and encourage each other to achieve the final goal. It must be recognized that all Members should assume a negotiating rather than an adversarial posture. It should also be recognized that different economies have different features and structures, different problems, different cultures. The pace of change must be carefully calibrated to take into account such differences. All Members should guard against unilateral action that cuts at the root of multilateral agreement and consensus.
    Developing countries have generally been apprehensive in particular about the implementation of special and differential treatment provisions (S&D) in various Uruguay Round Agreements. Full benefits of these provisions have not accrued to the developing countries, as clear guidelines have not been laid down on how these are to be implemented. "
    The first Ministerial Conference held in 1996 in Singapore saw the commencement of pressures toenlarge the agenda of WTO. Pressures were generated to introduce new Agreements on Investment, Competition Policy, Transparency in Government Procurement and Trade Facilitation. The concept of Core Labor Standards was also taken up for introduction.
     India and the developing countries, which were already under the burden of fulfilling the commitments undertaken through the Uruguay Round Agreements, and who also perceived many of the new issues to be non-trade issues, resisted the introduction of these new subjects into WTO. They were partly successful. The Singapore Ministerial Conference (SMC) set up open-ended Work Program to study the relationship between Trade and Investment; Trade and Competition Policy; to conduct a study on Transparency in Government Procurement practices; and do analytical work on simplification of trade procedures (Trade Facilitation).
    Most importantly the SMC clearly declared on the Trade-Labor linkage as follows:
    " We reject the use of labor standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question. In this regard we note that the WTO and ILO Secretariat will continue their existing collaboration".
    Not many people in this country are aware that there is a dispute settlement system in the WTO. This is at the heart of the WTO and sets it apart from the earlier GATT. Countries like the USA and the European Union have brought cases against us and won these cases like in pharmaceutical patents. India too has complained against the US and Europe and it too has won its fair share of disputes in areas like textiles. India must effectively use this mechanism to extract fair share in world markets.
    It would be advantageous for India to give concrete shape to SAARC economic forum or Free market and align itself with ASEAN.

    What India should do?

    The most important things for India to address are speed up internal reforms in building up world-class infrastructure like roads, ports and electricity supply. India should also focus on original knowledge generation in important fields like Pharmaceutical molecules, textiles, IT high end products, processed food, installation of cold chain and agricultural logistics to tap opportunities of globalization under WTO regime.
    India's ranking in recent Global Competitiveness report is not very encouraging due to infrastructure problems, poor governance, poor legal system and poor market access provided by India.
    Our tariffs are still high compared to Developed countries and there will be pressure to reduce them further and faster.
    India has solid strength, at least for mid term (5-7 years) in services sector primarily in IT sector, which should be tapped and further strengthened.
    India would do well to reorganize its Protective Agricultural policy in name of rural poverty and Food security and try to capitalize on globalization of agriculture markets. It should rather focus on Textile industry modernization and developing international Marketing muscle and expertise, developing of Brand India image, use its traditional arts and designs intelligently to give competitive edge, capitalize on drug sector opportunities, and develop selective engineering sector industries like automobiles & forgings & castings, processed foods industry and the high end outsourcing services.
    India must improve legal and administrative infrastructure, improve trade facilitation through cutting down bureaucracy and delays and further ease its financial markets.
    India has to downsize non-plan expenditure in Subsidies (which are highly ineffective and wrongly applied) and Government salaries and perquisites like pensions and administrative expenditures.
    Corruption will also have to be checked by bringing in fast remedial public grievance system, legal system and  information dissemination by using e-governance.
    The petroleum sector has to be boosted to tap crude oil and gas resources within Indian boundaries and entering into multinational contracts to source oil reserves.
    It wont be a bad idea if Indian textile and garment Industry go multinational setting their foot in western Europe, North Africa, Mexico and other such strategically located areas for large US and European markets.
    The performance of India in attracting major FDI has also been poor and certainly needs boost up, if India has to develop globally competitive infrastructure and facilities in its sectors of interest for world trade.
  • INTRODUCTION : The World Trade organization was established to deal with all the major aspects of international trade and it had far reaching effects not only on India’s foreign trade but also on its internal economy. The impact of the WTO on the Indian economy can be analysed on the basis and general concepts. • IMPACT : The WTO has both favourable and non-favourable impact on the Indian economy. • FAVOURABLE IMPACT : 1) Increase in export earnings : Increase in export earnings can be viewed from growth in merchandise exports and growth in service exports : • Growth in merchandise exports : The establishment of the WTO has increased the exports of developing countries because of reduction in tariff and non-tariff trade barriers. India’s merchandise exports have increased from 32 billion us $ (1995) to 185 billion u $ (2008-09). • Growth in service exports : The WTO introduced the GATS (general Agreement on Trade in Services ) that proved beneficial for countries like India.
    India’s service exports increased from 5 billion us $ (1995) to 102 billion us $ (2008-09) (software services accounted) for 45% of India’s service exports) 2) Agricultural exports : Reduction of trade barriers and domestic subsidies raise the price of agricultural products in international market, India hopes to benefit from this in the form of higher export earnings from agriculture 3) Textiles and Clothing : The phasing out of the MFA will largely benefit the textiles sector. It will help the developing countries like India to increase the export of textiles and clothing. 4) Foreign Direct Investment : As per the TRIMs agreement, restrictions on foreign investment have been withdrawn by the member nations of the WTO. This has benefited developing countries by way of foreign direct investment, euro equities and portfolio investment. In 2008-09, the net foreign direct investment in India was 35 billion us $. 5) Multi-lateral rules and discipline : It is expected that fair trade conditions will be created, due to rules and discipline related to practices like anti-dumping, subsidies and countervailing measure, safeguards and dispute settlements.
    Such conditions will benefit India in its attempt to globalise its economy. • UNFAVOURABLE IMPACT : 1) TRIPs Protection of intellectual property rights has been one of the major concerns of the WTO. As a member of the WTO, India has to comply with the TRIPs standards. However, the agreement on TRIPs goes against the Indian patent act, 1970, in the following ways: • Pharmaceutical sector : Under the Indian Patent act, 1970, only process patents are granted to chemicals, drugs and medicines. Thus, a company can legally manufacture once it had the product patent. So Indian pharmaceutical companies could sell good quality products (medicines) at low prices. However under TRIPs agreement, product patents will also be granted that will raise the prices of medicines, thus keeping them out of reach of the poor people, fortunately, most of drugs manufactured in India are off –patents and so will be less affected. • Agriculture Since the agreement on TRIPs extends to agriculture as well, it will have considerable implication’s onIndian agriculture. The MNG, with their huge financial resources, may also take over seed production and will eventually control food production. Since a large majority of Indian population depends on agriculture for their divelihood, these developments will have serious consequences. Micro-organisms : Under TRIPs Agreement, patenting has been extended to micro-organisms as well. This mill largely benefit MNCs and not developing countries like India. 2) TRIMS : The Agreement on TRIMs also favours developed nations as there are no rules in the agreement to formulate international rules for controlling business practices of foreign investors. Also, complying with the TRIMs agreement will contradict our objective of self – reliant growth based on locally available technology and resources. 3) GATS: The Agreement on GATS will also favour the developed nations more. Thus, the rapidly growing service sector in India will now have to compete with giant foreign firms. Moreover, since foreign firms are allowed to remit their profits, dividends and royalties to their parent company, it will cause foreign exchange burden for India. 4) TRADE AND NON – TARIFF Barriers : Reduction of trade and non-tariff barriers has adversely affected the exports of various developing nations. Various Indian products have been hit by. Non- tariff barriers. These include textiles, marine products, floriculture, pharmaceuticals, basmati rice, carpets, leather goods etc. 5) LDC exports : Many member nations have agreed to provide duty – frce and quota – frce market access to all products originating from least developed countries. India will have to now bear the adverse effect of competing with cheap LDC exports internationally. Moreover, LDC exports will also come to the Indian market and thus compete with domestically produced goods. • CONCLUSION : Thus the WTO is a powerful body that will enact international laws on various matters . It will also globalise many countries and help them to develop their competitive advantages and seek benefits from advanced technology of other nations. Though countries like India will face serious problems by complying to the WTO agreements, it can also benefit from it by taking advantage of the changing international environment.
  • Introduction:-
     
    Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.
     
    With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy.
     
    This era of reforms has also ushered in a remarkable change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947, such as self reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance, resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity.
     
    Now that India is in the process of restructuring her economy, with aspirations of elevating herself from her present desolate position in the world, the need to speed up her economic development is even more imperative. And having witnessed the positive role that Foreign Direct Investment (FDI) has played in the rapid economic growth of most of the Southeast Asian countries and most notably China, India has embarked on an ambitious plan to emulate the successes of her neighbors to the east and is trying to sell herself as a safe and profitable destination for FDI.
     
    Globalization has many meanings depending on the context and on the person who is talking about. Though the precise definition of globalization is still unavailable a few definitions are worth viewing, Guy Brainbant: says that the process of globalization not only includes opening up of world trade, development of advanced means of communication, internationalization of financial markets, growing importance of MNCs, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution. The term globalization refers to the integration of economies of the world through uninhibited trade and financial flows, as also through mutual exchange of technology and knowledge. Ideally, it also contains free inter-country movement of labor. In context to India, this implies opening up the economy to foreign direct investment by providing facilities to foreign companies to invest in different fields of economic activity in India, removing constraints and obstacles to the entry of MNCs in India, allowing Indian companies to enter into foreign collaborations and also encouraging them to set up joint ventures abroad; carrying out massive import liberalization programs by switching over from quantitative restrictions to tariffs and import duties, therefore globalization has been identified with the policy reforms of 1991 in India.
     
    The Important Reform Measures (Step Towards liberalization privatization and Globalization)
     
    Indian economy was in deep crisis in July 1991, when foreign currency reserves had plummeted to almost $1 billion; Inflation had roared to an annual rate of 17 percent; fiscal deficit was very high and had become unsustainable; foreign investors and NRIs had lost confidence in Indian Economy. Capital was flying out of the country and we were close to defaulting on loans. Along with these bottlenecks at home, many unforeseeable changes swept the economies of nations in Western and Eastern Europe, South East Asia, Latin America and elsewhere, around the same time. These were the economic compulsions at home and abroad that called for a complete overhauling of our economic policies and programs. Major measures initiated as a part of the liberalization and globalization strategy in the early nineties included the following:
     
    Devaluation: The first step towards globalization was taken with the announcement of the devaluation of Indian currency by 18-19 percent against major currencies in the international foreign exchange market. In fact, this measure was taken in order to resolve the BOP crisis
     
    Disinvestment-In order to make the process of globalization smooth, privatization and liberalization policies are moving along as well. Under the privatization scheme, most of the public sector undertakings have been/ are being sold to private sector
     
    Dismantling of The Industrial Licensing Regime At present, only six industries are under compulsory licensing mainly on accounting of environmental safety and strategic considerations. A significantly amended locational policy in tune with the liberalized licensing policy is in place. No industrial approval is required from the government for locations not falling within 25 kms of the periphery of cities having a population of more than one million.
     
    Allowing Foreign Direct Investment (FDI) across a wide spectrum of industries and encouraging non-debt flows. The Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalize the FDI regime, inter alias, include opening up of sectors such as Insurance (upto 26%); development of integrated townships (upto 100%); defense industry (upto 26%); tea plantation (upto 100% subject to divestment of 26% within five years to FDI); enhancement of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for most manufacturing activities in SEZs; opening up B2B e-commerce; Internet Service Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition; etc. The Department has also strengthened investment facilitation measures through Foreign Investment Implementation Authority (FIIA).
     
    Non Resident Indian Scheme the general policy and facilities for foreign direct investment as available to foreign investors/ Companies are fully applicable to NRIs as well. In addition, Government has extended some concessions especially for NRIs and overseas corporate bodies having more than 60% stake by NRIs
     
    Throwing Open Industries Reserved For The Public Sector to Private Participation. Now there are only three industries reserved for the public sector
     
    Abolition of the (MRTP) Act, which necessitated prior approval for capacity expansion
     
    The removal of quantitative restrictions on imports.
     
    The reduction of the peak customs tariff from over 300 per cent prior to the 30 per cent rate that applies now.
     
    Wide-ranging financial sector reforms in the banking, capital markets, and insurance sectors, including the deregulation of interest rates, strong regulation and supervisory systems, and the introduction of foreign/private sector competition.
     
    Impact of Globalization of Indian Economy
    The novel Tale of Two Cities of Charles Dickens begins with a piquant description of the contradictions of the times: It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; we had everything before us, we had nothing before us
     
    At the present, we can also say about the tale of two Indias: We have the best of times; we have the worst of times. There is sparkling prosperity, there is stinking poverty. We have dazzling five star hotels side by side with darkened ill-starred hovels. We have everything by globalization, we have nothing by globalization.
     
    Though some economic reforms were introduced by the Rajiv Gandhi government (1985-89), it was the Narasimha Rao Government that gave a definite shape and start to the new economic reforms of globalization in India. Presenting the 1991-92 Budget, Finance Minister Manmohan Singh said: After four decades of planning for industrialization, we have now reached a stage where we should welcome, rather fear, foreign investment. Direct foreign investment would provide access to capital, technology and market.
    In the Memorandum of Economic Policies dated August 27, 1991 to the IMF, the Finance Minister submitted in the concluding paragraph: The Government of India believes that the policies set forth in the Memorandum are adequate to achieve the objectives of the program, but will take any additional measures appropriate for this purpose. In addition, the Government will consult with the Fund on the adoption of any measures that may be appropriate in accordance with the policies of the Fund on such consultations.
    The Government of India affirmed to implement the economic reforms in consultation with the international bank and in accordance of its policies. Successive coalition governments from 1996 to 2004, led by the Janata Dal and BJP, adopted faithfully the economic policy of liberalization. With Manmohan Singh returned to power as the Prime Minister in 2004, the economic policy initiated by him has become the lodestar of the fiscal outlook of the government.
     
    The Bright Side of Globalization
     
    The rate of growth of the Gross Domestic Product of India has been on the increase from 5.6 per cent during 1980-90 to seven per cent in the 1993-2001 period. In the last four years, the annual growth rate of the GDP was impressive at 7.5 per cent (2003-04), 8.5 per cent (2004-05), nine per cent (2005-06) and 9.2 per cent (2006-07). Prime Minister Manmohan Singh is confident of having a 10 per cent growth in the GDP in the Eleventh Five Year Plan period.
     
    The foreign exchange reserves (as at the end of the financial year) were $ 39 billion (2000-01), $ 107 billion (2003-04), $ 145 billion (2005-06) and $ 180 billion (in February 2007). It is expected that India will cross the $ 200 billion mark soon.
     
    The cumulative FDI inflows from 1991 to September 2006 were Rs.1, 81,566 crores (US $ 43.29 billion).The sectors attracting highest FDI inflows are electrical equipments including computer software and electronics (18 per cent), service sector (13 per cent), telecommunications (10 per cent), transportation industry (nine per cent), etc. In the inflow of FDI, India has surpassed South Korea to become the fourth largest recipient.
    India controls at the present 45 per cent of the global outsourcing market with an estimated income of $ 50 billion.
     
    In respect of market capitalization (which takes into account the market value of a quoted company by multiplying its current share price by the number of shares in issue), India is in the fourth position with $ 894 billion after the US ($ 17,000 billion), Japan ($ 4800 billion) and China ($ 1000). India is expected to soon cross the trillion dollar mark.
     
    As per the Forbes list for 2007, the number of billionaires of India has risen to 40 (from 36 last year)more than those of Japan (24), China (17), France (14) and Italy (14) this year. A press report was jubilant: This is the richest year for India. The combined wealth of the Indian billionaires marked an increase of 60 per cent from $ 106 billion in 2006 to $ 170 billion in 2007. The 40 Indian billionaires have assets worth about Rs. 7.50 lakh crores whereas the cumulative investment in the 91 Public Sector Undertakings by the Central Government of India is Rs. 3.93 lakh crores only.
     
    The Dark Side of Globalization
     
    On the other side of the medal, there is a long list of the worst of the times, the foremost casualty being the agriculture sector. Agriculture has been and still remains the backbone of the Indian economy. It plays a vital role not only in providing food and nutrition to the people, but also in the supply of raw material to industries and to export trade. In 1951, agriculture provided employment to 72 per cent of the population and contributed 59 per cent of the gross domestic product. However, by 2001 the population depending upon agriculture came to 58 per cent whereas the share of agriculture in the GDP went down drastically to 24 per cent and further to 22 per cent in 2006-07. This has resulted in a lowering the per capita income of the farmers and increasing the rural indebtedness.
     
    The agricultural growth of 3.2 per cent observed from 1980 to 1997 decelerated to two per cent subsequently. The Approach to the Eleventh Five Year Plan released in December 2006 stated that the growth rate of agricultural GDP including forestry and fishing is likely to be below two per cent in the Tenth Plan period.
     
    The reasons for the deceleration of the growth of agriculture are given in the Economic Survey 2006-07: Low investment, imbalance in fertilizer use, low seeds replacement rate, a distorted incentive system and lo post-harvest value addition continued to be a drag on the sectors performance. With more than half the population directly depending on this sector, low agricultural growth has serious implications for the inclusiveness of growth.
     
    The number of rural landless families increased from 35 per cent in 1987 to 45 per cent in 1999, further to 55 per cent in 2005. The farmers are destined to die of starvation or suicide. Replying to the Short Duration Discussion on Import of Wheat and Agrarian Distress on May 18, 2006, Agriculture Minister Sharad Pawar informed the Rajya Sabha that roughly 1, 00,000 farmers committed suicide during the period 1993-2003 mainly due to indebtedness.
     
    In his interview to The Indian Express on November 15, 2005, Sharad Pawar said: The farming community has been ignored in this country and especially so over the last eight to ten years. The total investment in the agriculture sector is going down. In the last few years, the average budgetary provision from the Indian Government for irrigation is less than 0.35 percent.
     
    During the post-reform period, India has been shining brilliantly with a growing number of billionaires. Nobody has taken note of the sufferings of the family members of those unfortunate hundred thousand farmers.
     
    Further, the proportion of people depending in India on agriculture is about 60 % whereas the same for the UK is 2 %, USA 2 %and Japan 3 %. The developed countries, having a low proportion of population in agriculture, have readily adopted globalization which favors more the growth of the manufacturing and service sectors.
     
    About the plight of agriculture in developing countries, Nobel Prize-winning economist Joseph Stiglitz said: Trade agreements now forbid most subsidies excepted for agricultural goods. This depresses incomes of those farmers in the developing countries who do not get subsidies. And since 70 per cent of those in the developing countries depend directly or indirectly on agriculture, this means that the incomes of the developing countries are depressed. But by whatever standard one uses, todays international trading regime is unfair to developing countries.
     
    He also pointed out: The average European cow gets a subsidy of $ 2 a day (the World Bank measure of poverty); more than half the people in the developing world live on less than that. It appears that it is better to be a cow in Europe than to be a poor person in a developing country.
     
    Demoting Agriculture
     
    The Economic Survey reports released till 1991 contained the Chapters in the following order: (1) Introduction, (2) Agricultural Production, (3) Industrial Performance and Policies, (4) Infrastructure, (5) Human Resources, (6) Prices, Price Policy and Public Distribution System, (7) Fiscal Policy and Government Budget, (8) Monetary and Credit Developments, (9) The External Sector and (10) Problems and Prospects.
     
    In the Economic Survey 1991-92, Finance Minister Manmohan Singh recast the Chapters in the following order: (1) Introduction, (2) Public Finance, (3) Money and Credit, (4) Prices and Distribution, (5) Balance of Payments, (6) Industry, (7) Agriculture, (8) Infrastructure and (9) Social Sectors.
     
    It is not known as to why the Finance Minister demoted the importance of agriculture that has about 90 per cent population from the second place to the seventh in the annual Economic Survey of the country. In a way does it symbolize the low importance deliberately given to the growth of the agriculture sector in the scheme of globalization?
     
    Strategy of Globalization
     
    In the Report (2006) East Asian Renaissance, World Bank Advisor Dr Indermit Gill stated: Cities are at the core of a development strategy based on international integration, investment and innovation. East Asia is witnessing the largest rural-to-urban shift of population in history. Two million new urban dwellers are expected in East Asian cities every month for the next 20 years. This will mean planning for and building dynamic, connected cities that are linked both domestically and to the outside world so that economic growth continues and social cohesion is strengthened.
     
    The market economy seems to be more concerned with the growth of consumerism to attract the high income groups who are mostly in the cities in the developing countries. Rural economy and the agricultural sector were out of focus in the strategy of globalization.
     
    Growth of UnemploymentPoverty
     
    The proportion of the unemployed to the total labor force has been increasing from 2.62 per cent (1993-94) to 2.78 per cent (1999-2000) and 3.06 per cent (2004-05). In absolute figures, the number of unemployed had been in those years 9.02 million, 10.51 million and 13.10 million respectively. (Economic Survey 2006-07, Table 10.4)
     
    In reply to a question, the Minister for Labor and Employment informed the Lok Sabha on March 19, 2007, that the enrolment of the unemployed in the Employment Exchanges in 2006-07 was 79 lakhs against the average of 58 lakhs in the past ten years.
    About the impact of globalization, in particular on the development of India, the ILO Report (2004) stated: In India, there had been winners and losers. The lives of the educated and the rich had been enriched by globalization. The information technology (IT) sector was a particular beneficiary. But the benefits had not yet reached the majority, and new risks had cropped up for the losersthe socially deprived and the rural poor. Significant numbers of non-perennial poor, who had worked hard to escape poverty, were finding their gains reversed. Power was shifting from elected local institutions to unaccountable trans-national bodies. Western perceptions, which dominated the globe media, were not aligned with local perspectives; they encouraged consumerism in the midst of extreme poverty and posed a threat to cultural and linguistic diversity.
     
    Social Services
     
    About the quality of education given to children, the Approach to the Eleventh Five Year Plan stated: A recent study has found that 38 per cent of the children who have completed four years of schooling cannot read a small paragraph with short sentences meant to be read by a student of Class II. About 55 per cent of such children cannot divide a three digit number by a one digit number. These are indicators of serious learning problems which must be addressed.
     
    The Approach paper added further: Universalisation of education will not suffice in the knowledge economy. A person with a mere eight years of schooling will be as disadvantaged in a knowledge economy by ICT as an illiterate person in modern industry an services.
     
    The less said about the achievements in health the better. The Approach to the Eleventh Plan concedes that progress implementing the objectives of health have been slow. The Report gave the particulars of the rates of infant mortality (per 1000 live births) for India as 60 against Sri Lanka (13), China (30) and Vietnam (19). The rate of maternal mortality (per 1, 00,000 deliveries) of India is 407 against Sri Lanka (92), China (56) and Vietnam (130).
     
    Growth of Slum Capitals
     
    In his 2007-08 Budget Speech, Finance Minister Chidambaram put forth a proposal to promote Mumbai as a world class financial centre and to make financial services the next growth engine of India.
     
    Of its 13 million population, Mumbai city has 54 per cent in slums. It is estimated that 100 to 300 new families come to Mumbai every day and most land up in a slum colony. Prof R. N. Sharma of the Tata Institute of Social Science says that Mumbai is disintegrating into slums. From being known as the slum capital of India and the biggest slum of Asia, Mumbai is all set to become the slum capital of the world.
    The FDI inflows have in no way assisted in improving the health and environment conditions of the people. On the other hand, the financial capital of India and the political capital of India are set to become the topmost slum cities of the world.
     
    Victims of Globalization
     
    IN his Making Globalization Work, Nobel Laureate Stiglitz wrote: Trade liberalizationopening up markets to the free flow of goods and services was supposed to lead to growth. The evidence is at best mixed. Part of the reason that international trade agreements have been so unsuccessful in promoting growth in poor countries is that they were often unbalanced. The advanced industrial countries were allowed to levy tariffs on goods produced by developing countries that were, on average, four times higher that those on goods produced by other advanced industrial countries.
     
    In his foreword to The Dynamics and Impact of Globalization by Dr. M. V. Louis Anthuvan, Justice V. R. Krishna Iyer pointed out pithily: The New World Order is the product of what is now familiarly described as globalization, liberalization and privatization. The weaker sectors like the Asian and African countries are victims, whose economic welfare is slavery, at the disposal of the White world. When World War II came to a close, commercial conquest and trade triumph became the major goal of the United States and the other giant trade powers. Indeed, these mighty countries and companies even made world hunger as Big Business. The poorer countries with natural resources have been made banana republics and cucumber vassals.
     
    The Human Development Report 2006 recorded: Globalization has given rise to a protracted debate over the precise direction of trends in global income distribution. What is sometimes lost sight of is the sheer depth of inequalityand the associated potential for greater equity to accelerate poverty reduction. Measured in the 2000 purchasing power parity (PPP) terms, the gap between the incomes of the poorest 20 per cent of the worlds population and the $ 1 a day poverty line amounts to about $ 300 billion. That figure appears large, but it is less than two per cent of the income of the worlds wealthiest 10 per cent.
     
    To make Globalization Work
     
    Under the phenomenal growth of information technology which has shrunk space and time and reduced the cost of moving information, goods and capital across the globe, the globalization has brought unprecedented opportunities for human development for all, in developing as well as developed countries. Under the commercial marketing forces, globalization has been used more to promote economic growth to yield profits to some countries and to some groups within a country.
    India should pay immediate attention to ensure rapid development in education, health, water and sanitation, labor and employment so that under time-bound programmes the targets are completed without delay. A strong foundation of human development of all people is essential for the social, political and economic development of the country.
     
    Though at present India appears to be dominant in some fields of development as in IT-ITES, this prosperity may be challenged by other competing countries which are equipping themselves with better standards of higher education. As detailed earlier, our progress in education has been slow and superficial, without depth and quality, to compete the international standards.
     
    The government should take immediate steps to increase agricultural production and create additional employment opportunities in the rural parts, to reduce the growing inequality between urban and rural areas and to decentralize powers and resources to the panchayati raj institutions for implementing all works of rural development. Steps should be taken for early linking of the rivers, especially in the south-bound ones, for supply of the much-needed water for irrigation.
     
    It should be remembered that without a sustainable and productive growth of the agricultural sector, the other types of development in any sphere will be unstable and illusory. Despite the concerted development in manufacturing and service sectors, despite the remarkable inflow and overflow of foreign reserves, agriculture is still the largest industry providing employment to about 60 per cent of the workforce in the country.
     
    Mere growth of the GDP and others at the macro level in billions does not solve the chronic poverty and backward level of living norms of the people at the micro level. The growth should be sustainable with human development and decent employment potential. The welfare of a country does not percolate from the top, but should be built upon development from the bottom.
    During dry weather these slum dwellers use open areas around their units for defecation and the entire human waste generated from the slums along with the additional wastewater from their households is discharged untreated into the river Yamuna.
     
    The cumulative FDI inflows (until September 2006) to the New Delhi region was of Rs. 27,369 crores and to Mumbai Rs. 24,545 crores. The two spots of New Delhi and Mumbai received 46 per cent of the total FDI inflows into India.
     
  • Albania  8 September 2000
    Angola  23 November 1996
    Antigua and Barbuda  1 January 1995
    Argentina  1 January 1995
    Armenia  5 February 2003
    Australia  1 January 1995
    Austria  1 January 1995
    Bahrain, Kingdom of  1 January 1995
    Bangladesh  1 January 1995
    Barbados  1 January 1995
    Belgium  1 January 1995
    Belize  1 January 1995
    Benin  22 February 1996
    Bolivia, Plurinational State of  12 September 1995
    Botswana  31 May 1995 
    Brazil  1 January 1995
    Brunei Darussalam  1 January 1995
    Bulgaria  1 December 1996
    Burkina Faso  3 June 1995
    Burundi  23 July 1995
    Cambodia 13 October 2004
    Cameroon  13 December 1995
    Canada  1 January 1995
    Cape Verde 23 July 2008
    Central African Republic  31 May 1995
    Chad  19 October 1996
    Chile  1 January 1995
    China  11 December 2001
    Colombia  30 April 1995
    Congo  27 March 1997
    Costa Rica  1 January 1995
    Côte d'Ivoire  1 January 1995
    Croatia    30 November 2000
    Cuba  20 April 1995
    Cyprus  30 July 1995
    Czech Republic  1 January 1995
    Democratic Republic of the Congo  1 January 1997
    Denmark  1 January 1995
    Djibouti  31 May 1995
    Dominica  1 January 1995
    Dominican Republic  9 March 1995
    Ecuador  21 January 1996
    Egypt  30 June 1995
    El Salvador  7 May 1995
    Estonia  13 November 1999
    European Union (formerly European Communities)  1 January 1995 
    Fiji  14 January 1996
    Finland  1 January 1995
    France  1 January 1995
    Gabon  1 January 1995
    The Gambia    23 October 1996
    Georgia  14 June 2000
    Germany  1 January 1995
    Ghana  1 January 1995
    Greece  1 January 1995
    Grenada  22 February 1996
    Guatemala  21 July 1995
    Guinea  25 October 1995
    Guinea-Bissau  31 May 1995
    Guyana  1 January 1995
    Haiti  30 January 1996
    Honduras  1 January 1995
    Hong Kong, China  1 January 1995
    Hungary  1 January 1995
    Iceland  1 January 1995
    India  1 January 1995
    Indonesia  1 January 1995
    Ireland  1 January 1995
    Israel  21 April 1995
    Italy  1 January 1995
    Jamaica  9 March 1995
    Japan  1 January 1995
    Jordan  11 April 2000
    Kenya  1 January 1995
    Korea, Republic of  1 January 1995
    Kuwait, the State of  1 January 1995
    Kyrgyz Republic  20 December 1998
    Latvia  10 February 1999
    Lesotho  31 May 1995
    Liechtenstein  1 September 1995
    Lithuania  31 May 2001
    Luxembourg  1 January 1995
    Macao, China  1 January 1995
    Madagascar  17 November 1995
    Malawi  31 May 1995
    Malaysia  1 January 1995
    Maldives  31 May 1995
    Mali  31 May 1995
    Malta  1 January 1995
    Mauritania  31 May 1995
    Mauritius  1 January 1995
    Mexico  1 January 1995
    Moldova, Republic of  26 July 2001
    Mongolia  29 January 1997
    Montenegro  29 April 2012
    Morocco  1 January 1995
    Mozambique  26 August 1995
    Myanmar  1 January 1995
    Namibia  1 January 1995
    Nepal  23 April 2004
    Netherlands  1 January 1995
    New Zealand  1 January 1995
    Nicaragua  3 September 1995
    Niger  13 December 1996
    Nigeria  1 January 1995
    Norway  1 January 1995
    Oman  9 November 2000
    Pakistan  1 January 1995
    Panama  6 September 1997
    Papua New Guinea  9 June 1996
    Paraguay  1 January 1995
    Peru  1 January 1995
    Philippines  1 January 1995
    Poland  1 July 1995
    Portugal  1 January 1995
    Qatar  13 January 1996
    Romania  1 January 1995
    Russian Federation  22 August 2012
    Rwanda  22 May 1996
    Saint Kitts and Nevis  21 February 1996
    Saint Lucia  1 January 1995
    Saint Vincent & the Grenadines  1 January 1995
    Samoa  10 May 2012
    Saudi Arabia, Kingdom of  11 December 2005
    Senegal  1 January 1995
    Sierra Leone  23 July 1995
    Singapore  1 January 1995
    Slovak Republic  1 January 1995
    Slovenia  30 July 1995
    Solomon Islands  26 July 1996
    South Africa  1 January 1995
    Spain  1 January 1995
    Sri Lanka  1 January 1995
    Suriname  1 January 1995
    Swaziland  1 January 1995
    Sweden  1 January 1995
    Switzerland  1 July 1995
    Chinese Taipei 1 January 2002
    Tanzania  1 January 1995
    Thailand  1 January 1995
    The former Yugoslav Republic of Macedonia (FYROM)  4 April 2003
    Togo  31 May 1995
    Tonga  27 July 2007
    Trinidad and Tobago  1 March 1995
    Tunisia  29 March 1995
    Turkey  26 March 1995
    Uganda  1 January 1995
    Ukraine 16 May 2008
    United Arab Emirates  10 April 1996
    United Kingdom  1 January 1995
    United States of America  1 January 1995
    Uruguay  1 January 1995
    Vanuatu  24 August 2012
    Venezuela, Bolivarian Republic of  1 January 1995
    Viet Nam  11 January 2007
    Zambia  1 January 1995
    Zimbabwe  5 March 1995
  • Afghanistan
    Albania
    Algeria
    American Samoa
    Angola
    Antigua and Barbuda
    Argentina
    Armenia
    Azerbaijan
    Bangladesh
    Belarus
    Belize
    Benin
    Bhutan
    Bolivia
    Bosnia-Herzegovina
    Botswana
    Brazil
    Bulgaria
    Burkina Faso
    Burundi
    Cambodia
    Cameroon
    Cape Verde
    Central African Republic
    Chad
    Chile
    China
    Colombia
    Comoros
    Congo, Dem. Rep.
    Congo, Rep.
    Costa Rica
    Cote d'Ivoire
    Croatia
    Cuba
    Djibouti
    Dominica
    Dominican Republic
    Ecuador
    Egypt
    El Salvador
    Eritrea
    Ethiopia
    Fiji
    Gabon
    Gambia
    Georgia Republic
    Ghana
    Grenada
    Guatemala
    Guinea
    Guinea-Bissau
    Guyana
    Haiti
    Honduras
    India
    Indonesia
    Iran
    Iraq
    Jamaica
    Jordan
    Kazakhstan
    Kenya
    Kiribati
    Korea, Dem. Rep.
    Kyrgyzstan
    Laos
    Latvia
    Lebanon
    Lesotho
    Liberia
    Libya
    Lithuania
    Macedonia
    Madagascar
    Malawi
    Malaysia
    Maldives
    Mali
    Marshall Islands
    Mauritania
    Mauritius
    Mayotte
    Mexico
    Micronesia
    Moldova
    Mongolia
    Montenegro
    Morocco
    Mozambique
    Myanmar
    Namibia
    Nepal
    Nicaragua
    Niger
    Nigeria
    Pakistan
    Palau
    Panama
    Papua New Guinea
    Paraguay
    Peru
    Philippines
    Poland
    Romania
    Russia
    Rwanda
    Saint Kitts and Nevis
    Saint Lucia
    Saint Vincent
    Samoa
    Sao Tome and Principe
    Senegal
    Serbia
    Seychelles
    Sierra Leone
    Solomon Islands
    Somalia
    South Africa
    Sri-Lanka
    Sudan
    Suriname
    Swaziland
    Syria
    Tajikistan
    Tanzania
    Thailand
    Timor
    Togo
    Tonga
    Trinidad and Tobago
    Tunisia
    Turkey
    Turkmenistan
    Tuvalu
    Uganda
    Ukraine
    Uruguay
    Uzbekistan
    Vanuatu
    Venezuela
    Vietnam
    Yemen
    Zambia
    Zimbabwe
  • An international understanding, usually reflected in a legal instrument, relating to trade in a particular commodity, and based on terms negotiated and accepted by most of the countries that export and import commercially significant quantities of the commodity. Some commodity agreements such as those for coffee, cocoa, natural rubber and sugar have centered on economic provisions intended to stabilize the market price within a negotiated price range for the commodity through the use of buffer stocks or export quotas or both. Of these, only rubber currently has economic provisions as part of the agreement. Other commodity agreements (such as existing agreements for jute and jute products, olive oil and wheat) seek to promote cooperation among producers and consumers through improved consultations, exchange of information, research and development, and export promotion. 
  • Transcript of "International business environment MB-IB-01-MBA-IIIrd SEM-UPTU"

    1. 1. International Business Environment MB IB 01 1/29/2015 1Kartikeya Singh
    2. 2. Unit I – (10 sessions) I. International Business and Environment: An interface; II. World Trade in Goods and Services – Major trends and Developments; III. Framework for Understanding International Business Environment - Analysis of Physical, Demographic, Economic, Socio- cultural, Political, Legal and Technological Environment of a Foreign Country, IV. Legal Framework of International Business - Nature and Complexities; code and common laws and their implications to Business; V. International Business contract – Legal Provisions; International Sales Agreements, Rights and Duties of Agents and Distributors.1/29/2015 2Kartikeya Singh
    3. 3. International Business and Environment “A domestic transaction is the selling of items produced in the same country.” “An international transaction is the selling of items produced in other countries. These items contribute to the global economy.” 1/29/2015 3Kartikeya Singh
    4. 4.  IB field is concerned with the issues facing international companies and governments in dealing with all types of cross border transactions.  IB involves all business transactions that involve two or more countries.  IB consists of transactions that are devised and carried out across borders to satisfy the objectives of individuals and organizations.  IB consists of those activities private and public enterprises that involve the movement across national boundaries of goods and services, resources, knowledge or skills.1/29/2015 4Kartikeya Singh
    5. 5. Benefits of IB Benefits for International Business • Access to markets • Cheaper labour • Increased quality of goods • Increased quantity of goods • Access to resources 1/29/2015 5Kartikeya Singh
    6. 6. World Trade in Goods and Services – Major trends and Developments; • As trade flows have generally grown faster than income since the Second World War, countries’ openness and their exposure to external developments have increased; • Global trade collapsed in the global crisis of 2008-2009, recovery remains unfinished and uneven; the global crisis appears to have left a marked impact on the dynamism of global trade; • The global crisis has also brought the long-run trend of rising global integration through trade to a halt, at least temporarily; • The global crisis and uneven trade recovery have reinforced the ongoing shift in balance in the world economy, featuring the relative decline of developed countries; 1/29/2015 Kartikeya Singh 6
    7. 7. World Trade in Goods and Services – Major trends and Developments; • The shifting global balance is also visible in the changing distribution of exports by destination, featuring the rising importance of trade among developing countries; • The rise in South-South trade has been especially pronounced in East Asia; • LDCs have generally participated in these trends to a lesser extent but recovered some lost ground in recent years; • Related to commodity price developments; many countries have experienced sizeable terms-of-trade changes since 2002, with both winners (especially oil and metal exporters) and losers (especially food-deficit countries) among developing countries including LDCs; • Global governance reform needs to make further progress.1/29/2015 Kartikeya Singh 7
    8. 8. World Trade in Goods and Services – Major trends and Developments; • Removal of Tariff and Non-Tariff barriers • Transfer of technology leads to increased production • Increase in interdependence of countries. • International trade after WWII entered a long period of record expansion with world merchandise exports rising by more than 8% during 1950-70 • Trade growth slowed down after two oil shocks • 1990s trade expanded again more rapidly, partly driven by innovations in the information technology(IT) sector. • Despite the small contraction of trade caused by the dotcom crisis in 2001, the average expansion of world merchandise exports continued to be high.1/29/2015 Kartikeya Singh 8
    9. 9. World Trade in Goods and Services – Major trends and Developments; 1/29/2015 Kartikeya Singh 9 http://www.wto.org/english/res_e/statis_e/statis_bis_e.htm?solution=WTO& path=/Dashboards/MAPS&file=Map.wcdf&bookmarkState={%22impl%22: %22client%22,%22params%22:{%22langParam%22:%22en%22}}
    10. 10. Development Time Economic Political Technological 1940 •GATT 1947 •Bretton Woods System – IMF and World Bank 1945 •United Nation 1945 •Decolonisation Started(1948-1962) •First nylon Stalking •Discovery of Large oil field in middle east 1950 •European Commission 1957 •European Free Trade Association •Major Currency became convertible •Koreon War 1950 •Suez Crisis 1956 •Decolonisation of Africa Started •Increased Oil use from middle east, •‘Just in Time’ production implemented in Toyota •Increased use of jet engines 1/29/2015 Kartikeya Singh 10
    11. 11. Development Time Economic Political Technological 1960 •Foundation of OPEC-Oil producing and Exporting Countries – 1960 •Kennedy round – 1964- 1969 •More emphasis on export development in European region •Erection of Berlin Wall(1961) •Green Revolution •First high speed train system •Increased use of containerization in ocean transport. 1970 and 80s •Tokyo round GATT- 1973 •Oil price shocks •China Economic Reform 1978 EU was enlarged to 9 members and then to 12members •IBM introduced first personal computer 1981 •Microsoft Windows Introduced 1985 1/29/2015 Kartikeya Singh 11
    12. 12. Development Time Economic Political Technological 1990s •Indian Economic reforms 1991 •NAFTA – 1994 •Asian Financial Crisis •WTO – 1995 •Adoption of Euro 11 countries •Dissolution of Soviet Union 1991 leads to 13 independent states •Mobile usage on surge 2000 •China joins WTO 2001 •Enlargement of EU to 27 members •Sea transport increase multifold. 1/29/2015 Kartikeya Singh 12
    13. 13. Framework for Understanding International Business Environment Micro Environment • Customer • Competitor • Suppliers • Marketing Intermediaries • Democratic Macro Environment • Economic • Political and Legal • Socio Cultural • Demographic • Natural • Physical and Technological • International 1/29/2015 Kartikeya Singh 13
    14. 14. Legal Framework of International Business - • Ex ----- • Media advertising is not permitted in Libya • European countries restrain the use of children in commercial advertisements • In a number of countries, including India, the advertisement of alcoholic liquor is prohibited • “cigarette smoking is injurious to health” • In countries like Germany, product comparison advertisements and the use of superlatives like ‘best’ or ‘excellent’ in advertisements is not allowed • ‘caveat emptor’ or ‘let the buyer beware’ • MRTP act 1/29/2015 Kartikeya Singh 14
    15. 15. Legal Framework of International Business - Nature and Complexities; code and common laws and their implications to Business; • There is no comprehensive system of laws or regulations for guiding business transactions between two countries. • The legal environment consists of laws and policies from all countries engaged in international commercial activity. • Early trade customs centered around the law of the sea and provided, among other things, for rights of shipping in foreign ports, salvage rights, and freedom of passage. • During the Middle Ages, international principles embodied in the lex mercatoria (law merchant) governed commercial transactions throughout Europe. • Although laws governing international transactions were more extensive in some countries than others, the customs and codes of conduct created a workable legal structure for the protection and encouragement of international transactions. • The international commerce codes in use today in much of Europe and in the United States are derived in part from those old codes.1/29/2015 Kartikeya Singh 15
    16. 16. Sources of International Law - • The main sources of international commercial law are the laws of individual countries, the laws embodied in trade agreements between or among countries, and the rules enacted by a worldwide or regional organization— such as the United Nations or the European Union • The International Court of Justice, • International arbitration, or • The courts of an individual country 1/29/2015 Kartikeya Singh 16
    17. 17. Sources of International Law • UNO • WTO • Import policy • Taxes on Import • Import control – The Department of Commerce, the International Trade Administration (ITA),and the International Trade Commission (ITC) have certain abilities to restrict foreign imports. • Export Regulation and Promotion 1/29/2015 Kartikeya Singh 17
    18. 18. International Contract • The basis for any international agreement is the contract between parties. International contracts often involve parties from differing cultural backgrounds who do not know each other well at the outset of negotiations a) Cultural Aspect b) Financial Aspect c) Exchange Market d) Financial Instruments Used in International Contracts e) Movement of Monetary Profits 1/29/2015 Kartikeya Singh 18
    19. 19. Financial Instruments Used in International Contracts • Bill of exchange – sight bill – time bill • Letter of credit (Revocable/Irrevocable) – certificate of origin, – an export license, – a certificate of inspection, – a bill of lading, – a commercial invoice 1/29/2015 Kartikeya Singh 19
    20. 20. International Contract I. Payment clauses II. Choice of Language Clause III. Force Majeure Clause IV. Forum Selection and Choice-of-Law Clauses. V. UN Convention on Contracts VI. Loss of Investment VII. Nationalization. VIII.Insuring against Risk of Loss 1/29/2015 Kartikeya Singh 20
    21. 21. International Sales Agreements Content of the pro-forma Parties to the contract  Write the exact references of contracting parties along with, if posible, the name of respective representatives of the two companies. The aim  To prepare a detailed description of the product or service, with all the technical aspects and the details of packing (volume, weight, and packing) Transport Modalities  To determine the Incoterm, transport mode and the precised period required for delivery Price  The price must be detailled (unit price, etc), fime, final, in order to avoid misunderstanding. The buyer and the seller must define at this point of time the mode and period of settlement of bills. 1/29/2015 Kartikeya Singh 21
    22. 22. General Condition of Sales CLAUSES Parties to the contract  Identifying parties to the contract (buyer/seller) : Name of the companyies their Head Offices addresses detailed addresses and the name of respective representatives. Nature of the contract  Defining aim of the contract (product or service)  Describing technical aspects, quantity, volume, weight and eventually mode of packing, as the buyer can communicate his requirements. Prices and modes of payment  Specifying price in Dinar or foreign exchange (risk of exchange rate being included)  Price is accompanied by the term determining distribution of expenses on transport, custom duty, insurance and the time of transfer of property.  The price of merchandise will be defined (unit price and total price).  Provide for a code of settlement which gives a maximum security to the seller.  Down payment of advances guaranteeing the order.  In case of documentary credit, the seller notes the opening demand  In fine, if law permits, a cause for reservation of propriety can be inserted into the contract. 1/29/2015 Kartikeya Singh 22
    23. 23. General Condition of Sales 1/29/2015 Kartikeya Singh 23 CLAUSES Modalities of transport  Specifying the mode of transport consistant with nature of merchandise, destination and security.  Depending on the Incoterm, respective obligations of the contracting parties are stated. Modalities of delivery  Specifying date, place of loading and delivery.  Defining details according to the date of contract coming into force : respect for delivery period is one of the major obligations of the seller. One must provide and impose in advance penulties for delay. Force majeure  Indicating the force majeure for unforeseeable events. In principle, one should avoid accepting the case of force majeure resorted to by the seller to the extent to which he does not impose it. Guarantees  Defining the obligations of the two parties in regard to guarantee. Eg : guarantee of restoring advance for the seller. Jurisdiction in case of legal dispute  Specifying the law applicable to the settlement of legal disputes. Language  Specifying language of the contract, which must be mastered by both the parties. However, attention has to be paid to the problems of translations.
    24. 24. Unit –II ( 8 sessions) 1/29/2015 Kartikeya Singh 24
    25. 25. Unit II 1. Global Trading Environment: 2. Liberalization of World Trade. FDI and their Impact on the Economy, 3. Multinationals and their Economic Impact; 4. Political and Legal Impact of Multinational Corporations; 5. Strategies for Dealing with Multinationals; 6. Technology Transfer – Importance and Types, 7. Issues in Transfer of Technology to Developing Countries. 1/29/2015 Kartikeya Singh 25
    26. 26. 1.Global Trading Environment • Economic Integration is proceeding across the world at an unprecedented pace. • Globalization has brought enormous benefits to many countries and citizens. • The first part of Globalization process started around mid 19th century and ended with the commencement of World war 1st. • The second part began in the aftermath of World war II and continues today. • In both these episodes of Globalization, rapid trade and output growth went together with major shifts in the relative size of economies involved. • One valuable lesson from history is that globalization has not been a smooth process. 1/29/2015 Kartikeya Singh 26
    27. 27. 1.Global Trading Environment World 1850-1913 1913-1950 1950-73 1974-2007 Population Growth 0.8 1.7 1.9 1.6 GDP Growth 2.1 3.8 5.1 2.9 Per capita 1.3 2.0 3.1 1.2 Trade Growth 6.2 8.2 5 Migration 17.9 50.1 12.7 37.4 FDI as % of GDP(World) 5.2 25.6(2006) 1/29/2015 Kartikeya Singh 27
    28. 28. 1.Global Trading Environment Value Annual Percentage 2007(Billion Dollars) 2007(annual percentage change) Merchandise 13570 15 Commercial Services 3260 18 1/29/2015 Kartikeya Singh 28
    29. 29. 1.Global Trading Environment • Regional Integration Agreement and Trade(RIAs) – Regional Trading Blocks – Free trade zone. External tariff policy remains. – Custom Unions – common external Tariffs. – Elimination of tariffs on trade between the member states, – Different trade partners receive different treatment. – Members of RTA liberalize trade on reciprocal and preferential basis. 1/29/2015 Kartikeya Singh 29
    30. 30. 1.Global Trading Environment • Economic Effects of RIAs – Try to eliminate preferential trade arrangement – Trade Creation • Import from country A increases with member country B without reducing it import with other countries. – Trade Diversion • Preferably imports expensive goods. – Transfers. • Occurs between the members country • Positive transfer and negative transfer. 1/29/2015 Kartikeya Singh 30
    31. 31. Round Participants Key Achievements 1947 23 Tariff reduction 1949 13 Tariff reduction 1951 37 Tariff reduction 1956 26 Tariff reduction 1960-61, “Dillon Round” 26 Tariff reduction 1964-67,”Kennedy Round” 62 Tariff reduction, agreement on anti- dumping practices 1973-79,”Tokyo Round” 102 Tariff reduction, elimination of non-tariff barriers, “framework”agreements 1986-94,”Uruguay Round” 123 Tariff reduction, agreement to eliminate quotas in agriculture, agreement on intellectual property, agreement on dispute settlement, integration of textile and apparel products into the agreement, creation of the World Trade Organization (WTO) 2001-present “Doha Round” 146 Dubbed the “Development Round,” these negotiations focus on agriculture, trade of services, market access, intellectual property rights, investment, competition, transparency in government procurement, trade facilitation, and WTO rules, and have so far been characterized by conflict between developed and developing countries 1/29/2015 Kartikeya Singh 31
    32. 32. Foreign Direct Investment • Why is FDI increasing? • Why do firms choose FDI over exporting or licensing to enter a foreign market? • Why are certain locations attractive for FDI? • How does political ideology influence government policy over FDI? • From a host or source country perspective, what are FDI’s costs and benefits? • How can governments restrict/encourage FDI? 1/29/2015 Kartikeya Singh 32
    33. 33. FDI • Foreign direct investment (FDI) happens when a firm invests directly in facilities in a foreign country • A firm that engages in FDI becomes a multinational enterprise (MNE) – Multinational = “more than one country” 1/29/2015 Kartikeya Singh 33
    34. 34. FDI • Involves ownership of entity abroad for – production – Marketing/service – R&D – Raw materials or other resource access • Parent has direct managerial control – The degree of direct managerial control depends on the extent of ownership of the foreign entity and on other contractual terms of the FDI – No managerial involvement = portfolio investment 1/29/2015 Kartikeya Singh 34
    35. 35. FDI • FDI forms – Purchase of existing assets • Quick entry, local market know-how, local financing may be possible, eliminate competitor, – New investment • No local entity exists or is available for sale, local financial incentives may encourage, no inherited problems, long lead time to generation of sales or other desired outcome – Participation in an international joint- venture • Shared ownership with local and/or other non- local partner 1/29/2015 Kartikeya Singh 35
    36. 36. FDI • FDI – FDI - 100% ownership – FDI < 100% ownership, International Joint Venture • Majority, Equal Share, Minority Participation • Strategic Alliances (non-equity) • Franchising • Licensing • Exports – Direct vs Indirect 1/29/2015 Kartikeya Singh 36
    37. 37. Franchising Licensing Governed by: Securities law Contract law Registration: Required Not required Territorial rights: Offered to franchisee Not offered; licensee can sell similar licenses and products in same area Support and training: Provided by franchiser Not provided Royalty payments: Yes Yes Use of trademark/logo: Logo and trademark retained by franchiser and used by franchisee Can be licensed Examples: McDonalds, Subway, 7-11, Dunkin Donuts Microsoft Office control: Franchiser exercise control over franchisee. licensor does not have control over licensee 1/29/2015 Kartikeya Singh 37
    38. 38. Why FDI? • FDI over exporting – High transportation costs, trade barriers • FDI over licensing or franchising – Need to retain strategic control – Need to protect technological know-how – Capabilities not suitable for licensing/franchising 1/29/2015 Kartikeya Singh 38
    39. 39. Multinational Organization and its Impact • A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is registered in more than one country or that has operations in more than one country. It is a large corporation which both produces and sells goods or services in various countries. It can also be referred to as an international corporation. 1/29/2015 Kartikeya Singh 39
    40. 40. Multinational Organization and its Impact Advantages • Improving the balance of payments • Providing employment • Source of tax revenue • Technology transfer • Increasing choice • National reputation • Technology transfer Disadvantages • Environmental impact • Uncertainty • Increased competition • Crowding out • Influence and political pressure • Transfer pricing • Low-skilled employment • Health and safety • Export of Profits • Cultural and social impact 1/29/2015 Kartikeya Singh 40
    41. 41. Acquisition • Acquisition refers to the process of acquiring a company at a price called the acquisition price or acquisition premium. The price is paid in terms of cash or acquiring company's shares or both. –friendly acquisition and –hostile acquisition 1/29/2015 Kartikeya Singh 41
    42. 42. Merger • The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. • Basically, when two companies become one. This decision is usually mutual between both firms. 1/29/2015 Kartikeya Singh 42
    43. 43. Joint Venture • Joint venture, commonly known as JV, is a contractual arrangement between two or more parties who agree to come together to undertake a business project. All the parties contribute capital and share profits and losses in a decided ratio. • Joint ventures are a type of partnership that is always executed through a written contract known as a joint venture agreement (JVA). These contracts are registered and are legally binding on the parties. • Moreover, they are temporary in nature because they are executed for a definite period of time to accomplish a specific purpose. The contract automatically dissolves after the expiry of the decided time period. 1/29/2015 Kartikeya Singh 43
    44. 44. Amalgamation • Amalgamation is an arrangement where two or more companies consolidate their business to form a new firm, or become a subsidiary of any one of the company. • For practical purposes, the terms amalgamation and merger are used interchangeably. • Merger involves the fusion of two or more companies into a single company where the identity of some of the companies gets dissolved. On the other hand, amalgamation involves dissolving the entities of amalgamating companies and forming a new company having a separate legal entity. 1/29/2015 Kartikeya Singh 44
    45. 45. Merger vs Acquisition Merger Acquisition Merger is considered to be a process when two or more companies come together to expand their business operations. In such a case the deal gets finalized on friendly terms and both the companies share equal profits in the newly created entity. When one company takes over the other and rules all its business operations, it is known as acquisitions. merger two companies of same size combine to increase their strength and financial gains along with breaking the trade barriers in an acquisition usually two companies of different sizes come together to combat the challenges of downturn 1/29/2015 Kartikeya Singh 45
    46. 46. • Tata Steel’s mega takeover of European steel major Corus for $12.2 billion. The biggest ever for an Indian company. This is the first big thing which marked the arrival of India Inc on the global stage. The next big thing everyone is talking about is Tata Nano. • Vodafone’s purchase of 52% stake in Hutch Essar for about $10 billion. Essar group still holds 32% in the Joint venture. • Hindalco of Aditya Birla group’s acquisition of Novellis for $6 billion. • Ranbaxy’s sale to Japan’s Daiichi for $4.5 billion. Sing brothers sold the company to Daiichi and since then there is no real good news coming out of Ranbaxy. • ONGC acquisition of Russia based Imperial Energy for $2.8 billion. This marked the turn around of India’s hunt for natural reserves to compete with China. • NTT DoCoMo-Tata Tele services deal for $2.7 billion. The second biggest telecom deal after the Vodafone. Reliance MTN deal if went through would have been a good addition to the list. • HDFC Bank acquisition of Centurion Bank of Punjab for $2.4 billion. • Tata Motors acquisition of luxury car maker Jaguar Land Rover for $2.3 billion. This could probably the most ambitious deal after the Ranbaxy one. It certainly landed Tata Motors into lot of trouble. • Wind Energy premier Suzlon Energy’s acquistion of RePower for $1.7 billion. • Reliance Industries taking over Reliance Petroleum Limited (RPL) for 8500 crores or $1.6 billion. 1/29/2015 Kartikeya Singh 46
    47. 47. 5. Political and Legal Impact of Multinational • They integrate the economy • Try to give a unified platform for the trade • Integral part of World economy. • After WTO and different Regional Outfits countries started making rules and regulations to suit multinational organization • Regional blocks also started merging with each other so that entire world may become a uniform platform for the trade. • Funds move majorly moves from developed to developed countries but due to its importance political and legal framework are changing with a fast pace. • Open Gate policy in case of India is a practical example for it. • Barriers (tariff and non tariff) are being reduced in phase wise manner to give more benefit to the multinationals 1/29/2015 Kartikeya Singh 47
    48. 48. SWOT Analysis of MNC Strengths • Low Cost • Well Developed Infrastructure Weakness • Location is often very distant • Lack of Transportation facilities • Relative Inflexibility Opportunities • Leverage Government • Create the necessary infrastructure • Attract new industries Threats • Emergence of Private companies • Establishment of monopoly
    49. 49. 6. Strategies for Dealing with Multinationals 1/29/2015 Kartikeya Singh 49
    50. 50. 1/29/2015 Kartikeya Singh 50 EXHIBIT 6.1 MULTINATIONAL STRATEGY CONTENT Content Transnational International Multidomestic Regional Worldwide markets Yes Yes No No Worldwide location of separate value chain activities Yes No No No Global products Yes Yes No No Global marketing Yes Yes No No Global competitive moves Resources from any country used to attack or defend Attacks and defenses in all countries - resources HQ No, competitive moves planned and financed by country units No, but resources from region can be used
    51. 51. 7. Technology Transfer – Importance and Types, • … is composed of a systematically developed set of information, skills, and processes that are needed to create, develop, and innovate products and services 1/29/2015 Kartikeya Singh 51
    52. 52. 7. Technology Transfer – Importance and Types, • Product-embodied technologies are transferred by transferring the physical product itself • Process-embodied technology is concerned with blueprint or patent rights of the actual scientific processes and engineering details from the developer to another • Person-embodied technology is concerned with creating continuous dialogue between the supplier and the recipient organizations pertaining to the intrinsic nature, 1/29/2015 Kartikeya Singh 52
    53. 53. 7. Technology Transfer – Importance and Types, • Factors Influencing Technology Transfer – Similar language – Common ancestry and shared history – Physical proximity – Technical competence of the workforce – The complexity of the technology at the time of transfer – The number of successful prior transfers1/29/2015 Kartikeya Singh 53
    54. 54. 7. Technology Transfer – Importance and Types, • Factors Causing Difficulty in Technology Transfer. – Differences in strategic thinking – Characteristics of the technology involved – Differences in organizational and corporate cultures – Differences in societal cultures 1/29/2015 Kartikeya Singh 54
    55. 55. End of Unit II 1/29/2015 Kartikeya Singh 55
    56. 56. Unit III (8 Sessions) 1/29/2015 Kartikeya Singh 56
    57. 57. Unit III 1. International Financial Environment: a) Foreign Investment – Types and Flows; 2. Monetary System- a) Exchange Rate Mechanism and Arrangements, b) Movements in Foreign Exchange Rates and Impact on Trade and Investment Flows, Global Capital Markets. 1/29/2015 Kartikeya Singh 57
    58. 58. 1.International Financial Environment: a). Foreign Investment – Types and Flows; • New market access is also another major reason to invest in a foreign country. At some stage, export of product or service reaches a critical mass of amount and cost where foreign production or location begins to be more cost effective. Any decision on investing is thus a combination of a number of key factors including: • assessment of internal resources, • competitiveness, • market analysis • market expectations. 1/29/2015 Kartikeya Singh 58
    59. 59. 1.International Financial Environment: a). Foreign Investment – Types and Flows; – Resources: Availability and therefore exploitation of resources in the host country. – Markets: FDI largely flows to the countries which have large markets with comparatively good infrastructure and political stability. – Efficiency: Low cost of production, derived from cheap labor is the driving force of many FDIs in developing countries. – Rate of interest: Difference in the rate of interest acts as a stimuli to attracting foreign investment. Capital has a tendency to move from a country with a low rate of interest to a country where interest rate is higher. – Profitability: Private foreign capital is largely influenced by the profit motive. It is attracted to countries where the return on investment is higher. – Economic conditions: Economic conditions particularly market potential and infrastructural facilities influence foreign investment. – Government Policies and Political Factors: Policies encouraging FIIS and FDIs and a stable Government largely encourages the movement of foreign capital into the country 1/29/2015 Kartikeya Singh 59
    60. 60. 1.International Financial Environment: a). Foreign Investment – Types and Flows; • Why is FDI important for any consideration of going global? • The simple answer is that making a direct foreign investment allows companies to accomplish several tasks: • Avoiding foreign government pressure for local production. • Circumventing trade barriers, hidden and otherwise. • Making the move from domestic export sales to a locally-based national sales office. • Capability to increase total production capacity. • Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc; 1/29/2015 Kartikeya Singh 60
    61. 61. 1.International Financial Environment: a). Foreign Investment – Types and Flows; • Licensing and technology transfer. • Reciprocal distribution agreements. • Joint venture and other hybrid strategic alliances. • Portfolio investment. 1/29/2015 Kartikeya Singh 61
    62. 62. 1.International Financial Environment: a). Foreign Investment – Types and Flows; • Significance of Foreign Investment • Foreign capital facilitates essential imports required for carrying out development programmes, like capital goods, know-how, raw materials and other inputs and even consumer goods which might not be indigenously available. • When export earnings are insufficient to finance vital imports, foreign capital could reduce the foreign exchange gap. • Foreign investment may also increase the country’s exports and reduce the import requirements if such investments take place in export oriented and import competing industries. • As long as foreign investment raises productivity, it would benefit domestic labor in the form of increased real wages, consumers in case if foreign investment is cost reducing in a particular industry, the consumers might gain through lower product prices; government if the increase in production and foreign trade increases the fiscal revenue of the government. 1/29/2015 Kartikeya Singh 62
    63. 63. 1.International Financial Environment: a). Foreign Investment – Types and Flows; • Helps increase the investment level and thereby the income and employment in the host country. • It facilitates transfer of technology to the recipient country, • It may kindle a managerial revolution in the recipient country through professional management and employment of highly sophisticated management techniques. • Foreign capital may enable the country to increase its exports and reduce import requirements. • Foreign investment might stimulate domestic enterprises to perform better and increase competition and break domestic monopolies. 1/29/2015 Kartikeya Singh 63
    64. 64. 1.International Financial Environment: a). Foreign Investment – Types and Flows; • Criticism against Foreign Capital • Foreign capital tends to flow to the high profit areas rather than to the priority sectors. • Technology imported might not be adapted to the needs of the customers. • MNCs could undermine economic autonomy and control and their activities might not be in favor of national interests. • Foreign investment could have unfavorable effect on the Balance of Payments of a country if the outflow is higher due to payment of royalty etc. • Foreign investors at times engage in unfair practices and unethical trade practices. • Foreign investment could result in minimizing / eliminating competition and facilitate creation of monopolistic structure 1/29/2015 Kartikeya Singh 64
    65. 65. 2. Monetary System- International monetary systems over two centuries Date System Reserve assets Leaders 1803–1873 Bimetallism Gold, silver France, UK 1873–1914 Gold standard Gold, pound UK 1914–1924 Anchored dollar standard Gold, dollar US, UK, France 1924–1933 Gold standard Gold, dollar, pound US, UK, France 1933–1971 Anchored dollar standard Gold, dollar US, G-10 1971–1973 Dollar standard Dollar US 1973–1985 Flexible exchange rates Dollar, mark, pound US, Germany, Japan 1985–1999 Managed exchange rates Dollar, mark, yen US, G7, IMF 1999- Dollar, euro Dollar, euro, yen US, Eurozone, IMF1/29/2015 Kartikeya Singh 65
    66. 66. 2. Monetary System- 1/29/2015 Kartikeya Singh 66 Competing ideas for the next international monetary system System Reserve assets Leaders Flexible exchange rates Dollar, euro, renminbi US, Eurozone, China Special drawing rights standard SDR US, G-20, IMF Gold standard Gold, dollar US Delhi Declaration Currency basket BRICS
    67. 67. 2. Monetary System- a. Exchange Rate Mechanism and Arrangements  What is Exchange Rate ?  Exchange Rate is a rate at which one currency can be exchanged into another currency. In other words it is value one currency in terms of other. say: US $ 1 = Rs.61.5 This rate is the conversion rate of every US $ 1 to Rs. 61.5 1/29/2015 Kartikeya Singh 67
    68. 68. History • In 1821-1914Most of the World's currencies were redeemable into gold. (i.e. you could "cash in" your paper notes for predefined weights of gold coin). • Britain was the first to officially adopt this system in 1821 and was followed by other key countries during 1870s. • The result was a global economy connected by the common use of gold as money. • Close to the end of World War II, the Bretton Woods Agreement was signed. Since the impact of the Great Depression was still fresh in the minds of the policymakers, they wanted to shun all possibilities of a similar fiasco. The Bretton Woods Agreement founded a system of fixed exchange rates in which the currencies of all countries were pegged to the US dollar, which in turn was based on the gold standard. • By 1970, the existing exchange rate system was already under threat. The Nixon-led US government suspended the convertibility of the national currency into gold. The supply of the US dollar had exceeded its demand. • In 1971, the Smithsonian Agreement was signed. For the first time in exchange rate history, the market forces of supply and demand began to determine the exchange rate.
    69. 69. Three main categories of exchange rate regimes 1. Flexible Exchange Rate Systems 2. Managed Floating 3. Fixed Exchange-rate System
    70. 70. Flexible Exchange Rate Systems • The value of the currency is determined by the market, ex. by the interactions of thousands of banks, firms and other institutions seeking to buy and sell currency for purposes of transactions • So higher demand for a currency, all else equal, would lead to an appreciation of the currency. Lower demand, all else equal, would lead to a depreciation of the currency. An increase in the supply of a currency, all else equal, will lead to a depreciation of that currency while a decrease in supply, all else equal, will lead to an appreciation. • Most countries have flexible exchange rate systems: the U.S., Canada, Australia, Britain, and the European Monetary Union.
    71. 71. Managed Floating • A floating exchange rate in which a government intervenes at some frequency to change the direction of the float by buying or selling currencies. Often, the local government makes this intervention, but this is not always the case. For example, in 1994, the American government bought large quantities of Mexican pesos to stop the rapid loss of the peso's value. • The central bank does not have an explicit set value for the currency; it also doesn’t allow the market to freely determine the value of the currency. • Example: Suppose that Thailand had a managed floating rate system and that the Thai central bank wants to keep the value of the Baht close to 25 Baht/$. In a managed floating regime, the Thai central bank is willing to tolerate small fluctuations in the exchange rate (say from 24.75 to 25.25) without getting involved in the market.
    72. 72. Fixed Exchange-rate System • A system whereby the exchange rates of the member countries were fixed against the U.S. dollar, with the dollar in turn worth a fixed amount of gold. • Governments try to keep the value of their currencies constant against one another. • A country’s government decides the worth of its currency in terms of either a fixed weight of gold, a fixed amount of another currency or a basket of other currencies. • The central bank of a country remains committed at all times to buy and sell its currency at a fixed price. • The central bank provides foreign currency needed to finance payments imbalances.
    73. 73. De Facto Classification of Exchange Rate Regimes and Monetary Policy Frameworks (IMF, 2008) 1. Exchange Arrangements with No Separate Legal Tender 2. Currency Board Arrangements 3. Other Conventional Fixed Peg Arrangements 4. Pegged Exchange Rates within Horizontal Bands 5. Crawling Pegs 6. Exchange Rates within Crawling Bands 7. Managed Floating with No Predetermined Path for the Exchange Rate 8. Independently Floating
    74. 74. Exchange Arrangements with No Separate Legal Tender • The currency of another country circulates as the sole legal tender (formal dollarization) • The member belongs to a monetary or currency union in which the same legal tender is shared by the members of the union. • It implies the complete surrender of the monetary authorities' independent control over domestic monetary policy. 1. Exchange Arrangements with No Separate Legal Tender 2. Currency Board Arrangements 3. Other Conventional Fixed Peg Arrangements 4. Pegged Exchange Rates within Horizontal Bands 5. Crawling Pegs 6. Exchange Rates within Crawling Bands 7. Managed Floating with No Predetermined Path for the Exchange Rate 8. Independently Floating
    75. 75. Currency Board Arrangements • Based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate, combined with restrictions on the issuing authority to ensure the fulfillment of its legal obligation. • Domestic currency will be issued only against foreign exchange and that it remains fully backed by foreign assets, eliminating traditional central bank functions, such as monetary control and lender-of-last-resort, and leaving little scope for discretionary monetary policy. • Some flexibility may still be afforded, depending on how strict the banking rules of the currency board arrangement. 1. Exchange Arrangements with No Separate Legal Tender 2. Currency Board Arrangements 3. Other Conventional Fixed Peg Arrangements 4. Pegged Exchange Rates within Horizontal Bands 5. Crawling Pegs 6. Exchange Rates within Crawling Bands 7. Managed Floating with No Predetermined Path for the Exchange Rate 8. Independently Floating
    76. 76. Other Conventional Fixed Peg Arrangements • The country (formally or de facto) pegs its currency at a fixed rate to another currency or a basket of currencies, where the basket is formed from the currencies of major trading or financial partners and weights reflect the geographical distribution of trade, services, or capital flows. • The currency composites can also be standardized, as in the case of the SDR. There is no commitment to keep the parity irrevocably. The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate-or the maximum and minimum value of the exchange rate may remain within a narrow margin of 2 percent-for at least three months. • The monetary authority stands ready to maintain the fixed parity through direct intervention (i.e., via sale/purchase of foreign exchange in the market) or indirect intervention (e.g., via aggressive use of interest rate policy, imposition of foreign exchange regulations, exercise of moral suasion that constrains foreign exchange activity, or through intervention by other public institutions). • Flexibility of monetary policy, though limited, is greater than in the case of exchange arrangements with no separate legal tender and currency boards because traditional central banking functions are still possible, and the monetary authority can adjust the level of the exchange rate, although relatively infrequently. 1. Exchange Arrangements with No Separate Legal Tender 2. Currency Board Arrangements 3. Other Conventional Fixed Peg Arrangements 4. Pegged Exchange Rates within Horizontal Bands 5. Crawling Pegs 6. Exchange Rates within Crawling Bands 7. Managed Floating with No Predetermined Path for the Exchange Rate 8. Independently Floating
    77. 77. Pegged Exchange Rates within Horizontal Bands • The value of the currency is maintained within certain margins of fluctuation of at least ±1 percent around a fixed central rate or the margin between the maximum and minimum value of the exchange rate exceeds 2 percent. • It also includes arrangements of countries in the exchange rate mechanism (ERM) of the European Monetary System (EMS) that was replaced with the ERM II on January 1, 1999. • There is a limited degree of monetary policy discretion, depending on the band width. 1. Exchange Arrangements with No Separate Legal Tender 2. Currency Board Arrangements 3. Other Conventional Fixed Peg Arrangements 4. Pegged Exchange Rates within Horizontal Bands 5. Crawling Pegs 6. Exchange Rates within Crawling Bands 7. Managed Floating with No Predetermined Path for the Exchange Rate 8. Independently Floating
    78. 78. Crawling Pegs • The currency is adjusted periodically in small amounts at a fixed rate or in response to changes in selective quantitative indicators, such as past inflation differentials vis-à-vis major trading partners, differentials between the inflation target and expected inflation in major trading partners, and so forth. • The rate of crawl can be set to generate inflation- adjusted changes in the exchange rate (backward looking), or set at a preannounced fixed rate and/or below the projected inflation differentials (forward looking). • Maintaining a crawling peg imposes constraints on monetary policy in a manner similar to a fixed peg system. 1. Exchange Arrangements with No Separate Legal Tender 2. Currency Board Arrangements 3. Other Conventional Fixed Peg Arrangements 4. Pegged Exchange Rates within Horizontal Bands 5. Crawling Pegs 6. Exchange Rates within Crawling Bands 7. Managed Floating with No Predetermined Path for the Exchange Rate 8. Independently Floating
    79. 79. Exchange Rates within Crawling Bands • The currency is maintained within certain fluctuation margins of at least ±1 percent around a central rate-or the margin between the maximum and minimum value of the exchange rate exceeds 2 percent-and the central rate or margins are adjusted periodically at a fixed rate or in response to changes in selective quantitative indicators. • The degree of exchange rate flexibility is a function of the band width. Bands are either symmetric around a crawling central parity or widen gradually with an asymmetric choice of the crawl of upper and lower bands (in the latter case, there may be no preannounced central rate). • The commitment to maintain the exchange rate within the band imposes constraints on monetary policy, with the degree of policy independence being a function of the band width. 1. Exchange Arrangements with No Separate Legal Tender 2. Currency Board Arrangements 3. Other Conventional Fixed Peg Arrangements 4. Pegged Exchange Rates within Horizontal Bands 5. Crawling Pegs 6. Exchange Rates within Crawling Bands 7. Managed Floating with No Predetermined Path for the Exchange Rate 8. Independently Floating
    80. 80. Managed Floating with No Predetermined Path for the Exchange Rate • The monetary authority attempts to influence the exchange rate without having a specific exchange rate path or target. • Indicators for managing the rate are broadly judgmental (e.g., balance of payments position, international reserves, parallel market developments), and adjustments may not be automatic. Intervention may be direct or indirect. 1. Exchange Arrangements with No Separate Legal Tender 2. Currency Board Arrangements 3. Other Conventional Fixed Peg Arrangements 4. Pegged Exchange Rates within Horizontal Bands 5. Crawling Pegs 6. Exchange Rates within Crawling Bands 7. Managed Floating with No Predetermined Path for the Exchange Rate 8. Independently Floating
    81. 81. Independently Floating The exchange rate is market-determined, with any official foreign exchange market intervention aimed at moderating the rate of change and preventing undue fluctuations in the exchange rate, rather than at establishing a level for it. 1. Exchange Arrangements with No Separate Legal Tender 2. Currency Board Arrangements 3. Other Conventional Fixed Peg Arrangements 4. Pegged Exchange Rates within Horizontal Bands 5. Crawling Pegs 6. Exchange Rates within Crawling Bands 7. Managed Floating with No Predetermined Path for the Exchange Rate 8. Independently Floating
    82. 82. Movements in Foreign Exchange Rates and Impact on Trade and Investment Flows, Global Capital Markets • Foreign exchange trading increased by 20% between April 2007 and April 2010 and has more than doubled since 2004. • The increase in turnover is due to a number of factors: the growing importance of foreign exchange as an asset class, the increased trading activity of high-frequency traders, and the emergence of retail investors as an important market segment. • The growth of electronic execution and the diverse selection of execution venues has lowered transaction costs, increased market liquidity, and attracted greater participation from many customer types. • In particular, electronic trading via online portals has made it easier for retail traders to trade in the foreign exchange market. By 2010, retail trading is estimated to account for up to 10% of spot turnover, or $150 billion per day (see retail foreign exchange platform). 1/29/2015 Kartikeya Singh 82
    83. 83. •End of Unit III 1/29/2015 Kartikeya Singh 83
    84. 84. Syllabus Unit III • International Economic Institutions: – IMF, – World Bank, – MIGA, – UNCTAD and – WTO; – ATC, – GSP and – International Commodity Agreements. 1/29/2015 Kartikeya Singh 84
    85. 85. a.IMF • The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Breton Woods Conference and formally created in 1945 by 29 member countries • Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily. • Members – 188 countries • Head quarter – Washington DC. • Managing Director - Christine Lagarde 1/29/2015 Kartikeya Singh 85
    86. 86. a.IMF • Promote international monetary cooperation through a permanent institution • Provides the machinery for consultation and collaboration on international monetary problems • To facilitate the expansion and balanced growth of international trade • To contribute to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy • To promote exchange stability • To maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation 1/29/2015 Kartikeya Singh 86
    87. 87. a.IMF • The Functions of the IMF a) Surveillance (like a doctor) – Gathering data and assessing economic policies of countries b) Technical Assistance (like a teacher) – Strengthening human skills and institutional capacity of countries c) Financial Assistance (like a banker) – Lending to countries to support reforms 1/29/2015 Kartikeya Singh 87
    88. 88. a.IMF a) Surveillance • Surveillance over Members’ Economic Policies • countries agree to pursue economic policies that are consistent with the objectives of the IMF. • The Articles of Agreement confer on the IMF the legal authority to oversee compliance by members with this obligation • IMF is “the only organization that has a mandate to examine on a regular basis the economic • circumstances of virtually every country in the world.” 1/29/2015 Kartikeya Singh 88
    89. 89. a.IMF b) Technical Assistance • Strengthening human skills and institutional capacity of countries • Helps members in strengthening their policy formulation and implementation, and the legal, institutional, and market frameworks within which they operate. • It also constitutes an important complement to IMF surveillance and lending operations in member countries. 1/29/2015 Kartikeya Singh 89
    90. 90. a.IMF c) Financial Assistance (like a banker) • Lending to countries to support reforms • Improving financial sector surveillance. • Development of standards and codes of good practice. • Enhancement of transparency in the IMF and its member countries. • Involvement of the private sector in crisis resolution 1/29/2015 Kartikeya Singh 90
    91. 91. Organization
    92. 92. a.IMF Organization of IMF • The Board of Governors, the highest decision- making body of the IMF, consists of one governor and one alternate governor for each member country. • The governor is appointed by the member country and is usually the minister of finance or the governor of the central bank. • Board of Governors decide on major policy issues • All powers of the IMF are vested in the Board of Governors. • Day-to-day decision making is taken by – Executive Governors 1/29/2015 Kartikeya Singh 92
    93. 93. a.IMF Quotas & subscriptions • Quota subscriptions generate most of the IMF's financial resources. • Each member country of the IMF is assigned a quota, based broadly on its relative size in the world economy. • A member's quota determines its maximum financial commitment to the IMF and its voting power, and has a bearing on its access to IMF financing. 1/29/2015 Kartikeya Singh 93
    94. 94. • A new country is assigned an initial quota in the same range as the quotas of existing members • The quota formula is a weighted average of GDP (weight of 50 percent), openness (30 percent), economic variability (15 percent), and international reserves (5 percent ) • For this purpose, GDP is measured as a blend of GDP based on a market exchange rates (weight of 60 percent) and on PPP exchange rates (40 percent). • Quotas are denominated in Special Drawing Rights (SDRs) • The formula also includes a “compression factor” that reduces the dispersion in calculated quota shares across members. 1/29/2015 Kartikeya Singh 94
    95. 95. a.IMF Quotas & subscriptions • A new country is assigned an initial quota in the same range as the quotas of existing members • The quota formula is a weighted average of GDP (weight of 50 percent), openness (30 percent), economic variability (15 percent), and international reserves (5 percent ) • Quotas are denominated in Special Drawing Rights (SDRs) 1/29/2015 Kartikeya Singh 95
    96. 96. a.IMF Special Drawing Rights • The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. • Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. • With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (currently equivalent to about $324 billion).1/29/2015 Kartikeya Singh 96 1st January 1, 2011 the weigtage to these currencies in SDR Euro 37.4% Japanese yen 9.4% Pound Sterling 11.3% US dollar 41.9% 100%
    97. 97. a.IMF Special Drawing Rights • The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold. • the SDR was redefined as a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar. • The U.S. dollar-value of the SDR is posted daily on the IMF's website. • It is calculated as the sum of specific amounts of the four currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market. 1/29/2015 Kartikeya Singh 97
    98. 98. The World Bank • IBRD & IDA : Working for a World Free of Poverty
    99. 99. Bretton Woods • In response to post-war reconstruction and to discuss the future of international economic cooperation • In July of 1944, representatives from countries met at Bretton Woods, New Hampshire. • Creation of two institutions, 1.International Monetary Fund (IMF) 2.International Bank for Reconstruction and Development; a.k.a. the “World Bank.”
    100. 100. The World Bank • The Bank’s initial goal was to assist in the reconstruction of post-war Europe • Now, the Bank makes development loans to developing countries – Goal is to reduce poverty by financing and assisting in numerous projects such as healthcare, education, infrastructure, communications, and other like projects
    101. 101. The World Bank Group 1. International Bank for Reconstruction and Development (IBRD) – Est. 1946, “aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services” 2. International Development Association (IDA) – Est.1960, interest free loans and grants 3. International Finance Corporation (IFC) – Est.1956, Private sector arm of the World Bank 4. Multilateral Investment Guarantee Agency (MIGA) – Est.1988, Promotes Foreign Direct Investment in developing countries 5. International Centre for Settlement of Investment Disputes (ICSID) – Est. 1966, facilitate the settlement of investment disputes between governments and foreign investors www.worldbank.org
    102. 102. Structure of the World Bank • Headquartered in Washington D.C. • Over 100 offices all over the world • 185 member countries • Membership of the IMF is required • 5 Largest shareholders: France, Germany, Japan, UK, and US
    103. 103. Board of Governors • Made of up representatives from member countries – Typically, the representatives are ministers of finance or ministers of development • Meet annually to review policies and review membership • Ultimate policy makers • Elect a Board of Directors every 2 years
    104. 104. Board of Directors • 24 members of the Board (5 from the largest shareholders, 19 to cover the remaining geography) • President of the World Bank serves as the Chairman of the Board • General operations • Meet twice a week • According to the Charter, the member with the greatest # of shares, chooses the president. • The president is, traditionally, a U.S. citizen and is the chairman of the Board.
    105. 105. 1. Increasing Political Accountability • Political accountability refers to the constraints placed on the behavior of public officials by organizations and constituencies with the power to apply sanctions on them. As political accountability increases, the costs to public officials of taking decisions that benefit their private interests at the expense of the broader public interest also increase, thus working as a deterrent/disincentive to corrupt practices. Accountability rests largely on the effectiveness of the sanctions and the capacity of accountability institutions to monitor the actions, decisions, and private interests of public officials.
    106. 106. 2. Strengthening Civil Society Participation • As stakeholders in good governance and institutions mediating between the state and the public, the organizations that comprise “civil society” – citizen groups, nongovernmental organizations, trade unions, business associations, think tanks, academia, religious organizations and last but not least media – can have an important role to play in constraining corruption. This is true at the country level as well as internationally.
    107. 107. 3. Creating a Competitive Private Sector • The degree to which powerful elites influence decisions and policy-making of the state (state capture) constraints the implementation of a fair, competitive, honest and transparent private sector and thus hinders broad-based economic development. The ability of powerful economic interests to capture the state can be constrained by: – Economic policy liberalization – Enhancing greater competition – Regulatory reform – Good corporate governance – Promoting business associations, trade unions, and concerned parties – Transnational cooperation
    108. 108. 4. Institutional Restraints on Power • The institutional design of the state can be an important mechanism in checking corruption. Of particular importance is the effective development of institutional restraints within the state which is most effectively achieved through some degree of separation of powers and establishment of cross cutting oversight responsibilities among state institutions. Effective constraints by state institutions on each other can diminish opportunities for the abuse of power and penalize abuses if they occur.
    109. 109. 5. Improving Public Sector Management • The fifth building block of an anti-corruption strategy consists of reforms in the internal management of public resources and administration to reduce opportunities and incentives for corruption. Reforming public sector management and public finance requires: – A meritoric civil service with monetized, adequate pay – Enhancing transparency and accountability in budget management. – Enhancing transparency and accountability in tax and customs – Policy reforms in sectoral service delivery – Decentralization with accountability
    110. 110. The Wolfowitz Scandal • In 2005, Paul Wolfowitz was appointed by the Bush administration to head the World Bank Group. • “0% tolerance for corruption • On May 18, 2007, Paul Wolfowitz, the president of the World Bank retired. • Prior to his appointment as president of the World Bank, Wolfowitz had dated Shaha Riza, a World Bank employee.
    111. 111. What’s Next for the World Bank?
    112. 112. Millennium Development Goals Targets and Goals set for 2015 1. Reducing Poverty and Hunger—global poverty is projected to fall to 12 percent 2. Educating All Children—ensure that all children complete primary education. 3. Empowering Women—eliminate gender disparity in primary and secondary education. 4. Saving Children—reduce the under 5 mortality rate. www.web.worldbank.org “Millennium Development Goals”
    113. 113. Millennium Development Goals 5. Caring for Mothers—reduce the maternal mortality rate. 6. Combating Diseases—such as AIDS/HIV, Tuberculosis, malaria, and other major diseases. 7. Using Resources Wisely—improvements in slum dwellings, create sustainable access to drinking water, and sustainable access to basic sanitation. 8. Working Together—make available technological advancements in information and communication. Allow affordable access to essential drugs in developing countries. Address the particular need of developing countries. www.web.worldbank.org “Millennium Development Goals”
    114. 114. The International Monetary Fund and the World Bank at a Glance •International Monetary Fund oversees the international monetary system •promotes exchange stability and orderly exchange relations among its member countries •assists all members--both industrial and developing countries--that find themselves in temporary balance of payments difficulties by providing short- to medium-term credits •supplements the currency reserves of its members through the allocation of SDRs (special drawing rights); to date SDR 21.4 billion has been issued to member countries in proportion to their quotas •draws its financial resources principally from the quota subscriptions of its member countries •has at its disposal fully paid-in quotas now totaling SDR 145 billion (about $215 billion) •has a staff of 2,300 drawn from 188 member countries •World Bank seeks to promote the economic development of the world's poorer countries •assists developing countries through long-term financing of development projects and programs •provides to the poorest developing countries whose per capita GNP is less than $865 a year special financial assistance through the International Development Association (IDA) •encourages private enterprises in developing countries through its affiliate, the International Finance Corporation (IFC) •acquires most of its financial resources by borrowing on the international bond market •has an authorized capital of $184 billion, of which members pay in about 10 percent •has a staff of 7,000 drawn from 188 member countries 1/29/2015 Kartikeya Singh 114
    115. 115. 1.c.MIGA • The Multilateral Investment Guarantee Agency (MIGA) is an international financial institution which offers political risk insurance guarantees. Such guarantees help investors protect foreign direct investments against political and non- commercial risks in developing countries 1/29/2015 Kartikeya Singh 115
    116. 116. Governance • MIGA is governed by its Council of Governors which represents its member countries. • The Council of Governors holds corporate authority, but primarily delegates such powers to MIGA's Board of Directors. • The Board of Directors consists of 25 directors and votes on matters brought before MIGA. • Each director's vote is weighted in accordance with the total share capital of the member nations that director represents. • MIGA's board is stationed at its Washington, D.C. headquarters where it meets regularly and oversees the agency's activities. • The agency's Executive Vice President directs its overall strategy and manages its daily operations. • As of 15 July 2013, Keiko Hondai serves as Executive Vice President of MIGA. 1/29/2015 Kartikeya Singh 116
    117. 117. Membership • MIGA is owned by its 179 member governments, consisting of 152 developing and 25 industrialized countries. • The members are composed of 178 United Nations member states plus Kosovo. Membership in MIGA is available only to countries who are members of the World Bank, particularly the International Bank for Reconstruction and Development. • As of 2013, the nine World Bank member states that are not MIGA members are Bhutan, Brunei, Burma, Kiribati,Marshall Islands, San Marino, Somalia, Tonga, and Tuvalu. (The UN states that are non-members of the World Bank, and thus MIGA, are Andorra, Cuba, Liechtenstein, Monaco, Nauru, and North Korea.) The Holy See and Palestineare also non-MIGA members. 1/29/2015 Kartikeya Singh 117
    118. 118. Investment guarantees • MIGA offers insurance to cover five types of non-commercial risks: – Currency inconvertibility and transfer restriction; – Government expropriation; – War, – Terrorism, and – Civil disturbance; – Breaches of contract; 1/29/2015 Kartikeya Singh 118
    119. 119. UNCTAD(United Nations Conference on Trade and Development) • The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues. • The organization's goals are to "maximize the trade, investment and development opportunities of developing countries and assist them in their efforts to integrate into the world economy on an equitable basis.” • The creation of the conference was based on concerns of developing countries over the international market, multi-national corporations, and great disparity between developed nations and developing nations.1/29/2015 Kartikeya Singh 119
    120. 120. UNCTAD(United Nations Conference on Trade and Development) • Acronyms UNCTAD • Established1964 • Headquarters Geneva, Switzerland • Website : www.unctad.org • In the 1970s and 1980s, UNCTAD was closely associated with the idea of a New International Economic Order (NIEO). • Currently 194 members. 1/29/2015 Kartikeya Singh 120
    121. 121. UNCTAD(United Nations Conference on Trade and Development) • The primary objective of the UNCTAD is to formulate policies relating to all aspects of development including trade, aid, transport, finance and technology. • The conference ordinarily meets once in four years. • The first conference took place in Geneva in 1964, • second in New Delhi in 1968, • the third in Santiago in 1972, • fourth in Nairobi in 1976, • the fifth in Manila in 1979, • the sixth in Belgrade in 1983, • the seventh in Geneva in 1987, • the eighth in Cartagena in 1992 and • the ninth at Johannesburg (South Africa) in 1996. The permanent secretariat is in Geneva. 1/29/2015 Kartikeya Singh 121
    122. 122. UNCTAD • Currently, UNCTAD has 194 member states and is headquartered in Geneva, Switzerland. • UNCTAD has 400 staff members and an bi-annual (2010–2011) regular budget of $138 million in core expenditures and $72 million in extra-budgetary technical assistance funds. • It is a member of the United Nations Development Group. There are non- governmental organizations participating in the activities of UNCTAD. 1/29/2015 Kartikeya Singh 122
    123. 123. GATT – General agreement on Tariff and Trade. • The prolonged recession before the World war II in the west was due to the decades of protectionism followed by the industrialized countries. This led to conduct of negotiations in 1947 among 23 countries in order to prevent the protectionist policies and to revive the economies from the recession. These negotiations of the conferences resulted in the General Agreement on Tariffs and Trade (GATT) among the participating countries. Thus GATT has its origin in 1947 at the conference of Geneva. 1/29/2015 Kartikeya Singh
    124. 124. GATT – General agreement on Tariff and Trade. • The birth of GATT • 30th October 1947, the General Agreement of Tariffs and Trade was signed by 23 countries. 1947 • 1st January 1948 • GAAT Came into force1948 • Second Round at Annecy, France. • Exchanged some 5000 tariff concessions.1949 1/29/2015 Kartikeya Singh
    125. 125. GATT – General agreement on Tariff and Trade. • Third Round at Torquay U K • The contracting parties exchanged some 8700 concessions. 1950 • Fourth Round at Geneva, Switzerland. • Got some $ 2.5 billion worth of tariff reduction. 195 6 • Fifth Round, Dillon round • Tariff concessions worth $4.9 billion of world trade 19 6 0 1/29/2015 Kartikeya Singh
    126. 126. GATT – General agreement on Tariff and Trade. • Short term arrangement • Covering cotton textile(Exception)19 6 1 • Kennedy round, Fifth round. • Trade negotiation was formally opened. 19 6 4 • A new chapter, Sixth round. • Many newly independent countries participated in the agreement. 19 6 5 1/29/2015 Kartikeya Singh
    127. 127. GATT – General agreement on Tariff and Trade. • The Tokyo round, Seventh round • Comprehensive body covering tariff and non tariff matter 1973 • The arrangement regarding International Trade in textile. • Known as Multifibre arrangement(MFA) 1974 • Uruguay Round, Eighth round. • Went upto 7 and half years. 1986 1/29/2015 Kartikeya Singh
    128. 128. GATT – General agreement on Tariff and Trade. • Successful conclusion of the Uruguay round • 15th December 1993. Geneva, Switzerland 1993 • The final act of U rugway round signed • Marrakesh, Morocco, 15 April 1994 1994 • World Trade Organisation came into force. 1st January 1995. • Geneva was accepted as headquarter. 1995 1/29/2015 Kartikeya Singh
    129. 129. URUGUAY ROUND AND ARTHUR DUNKEL PROPOSAL 1/29/2015 Kartikeya Singh
    130. 130. Uruguay Round Package • The draft proposals proposed by Arthur Dunkel in the Uruguay Round of GATT include 1. Market Access. 2. Agriculture. 3. Trade Related Intellectual Property Rights(TRIPs). 4. Trade Related Investment Measures (TRIMs) 5. Trade in Services. 6. Textile. 7. Institutional Matter. 1/29/2015 Kartikeya Singh
    131. 131. Uruguay Round Package – 1.Market Access – Arthur Dunkel suggested that the Government control in marketing activities and operation will have to be slackened. The member Governments will have to abolish the barriers related to the market access. – First, Both developing and developed countries agreed to significantly increase their share of industrial product imports. – Second, The average tariff on developed countries’ imports of industrial products was cut by 40 per cent on imports from all sources, and by 37 per cent on imports from developing countries. – Third, substantial progress was made with regard to non-tariff barriers 1/29/2015 Kartikeya Singh
    132. 132. Uruguay Round Package – 2. Agriculture  Member Government are suggested to reduce the subsidy on fertilizers, seeds and other inputs and eliminate the administered pricing in respect to agricultural sector.  The proposal include :-  How a country can remove his subsidy in different phases.  A supplementary agreement on the modalities by which subsidy would be removed.  A decision on application of sanitary and phycosanitary measures and  A declaration on measures to assist for food importing countries. 1/29/2015 Kartikeya Singh
    133. 133. Uruguay Round Package – 2. Agriculture 1/29/2015 Kartikeya Singh Amber box Blue box Green box Total Aggregate Measurement of Support (AMS) De Minimis –Minimum Limit 5% - Developed Countries 10% - Developing Countries
    134. 134. Uruguay Round Package - 3. TRIPs Trade Related Intellectual Property Rights • Dunkel proposal regarding trade intellectual property rights (TRIPs) in respect of business and commerce include : – Protection of patents – 20 years – Copy rights – 50 years – Design – 10 years – Trade Marks – 7 years – Trade Secrets - 1/29/2015 Kartikeya Singh
    135. 135. Uruguay Round Package – 4. TRIMS - Trade Related Investment Measures – Abolition of Restrictions imposed on foreign capital. – Offering equal rights to the foreign investor equal to those of the domestic investor. – No restriction on investment – No limitations or ceiling on the quantum of foreign investment. – Granting of permission without restrictions to import raw materials and other companies. – No force on the foreign investors to use total products or materials. 1/29/2015 Kartikeya Singh
    136. 136. Uruguay Round Package – 5. Trade in Services. • Trade in services like, insurance, travel, tourism, hotel, banking, maritime, transportation, mobility of human resources etc. have been included in the proposal • GATS – General agreement in Trade in services provides a multilateral framework of principles and services. • GATS governs trade in services. 1/29/2015 Kartikeya Singh
    137. 137. Uruguay Round Package – 6. Textile. • An attempt was made to re-integrate textile into GATT in order to do away with Multi Fiber Arrangement.(MBA). • Textile was included in Dunkel Proposal • Developed countries dismantled the import quotas on garment and textile from 1st January, 2005. • Strategies for Textile firms. – Product Specialization – Cross-border cooperation – Improve sourcing skills – Focus on higher value products – More flexible rules of origin – Interregional Cooperation – Creation of Conducive Environment. 1/29/2015 Kartikeya Singh
    138. 138. Uruguay Round Package – 7. Institutional Matter. • It handles the grievances of two participating nations. • Try to remove barriers to trade • Try to implement guidelines of the WTO/GATT. • Takes care of the breach of the law. 1/29/2015 Kartikeya Singh
    139. 139. 1/29/2015 Kartikeya Singh Ministerial Conference General Council Dispute Settlement Body CT in Goods CT in Services CT in Intellectual rights Director General Secretariat of the WTO Trade Policy Review Body Committee for trade and development Committee on balance of payment C. On Budget Finance
    140. 140. WTO – 1st Ministerial Conference • Singapore, 9th December, 1996.(128 countries) • Reaffirmation of International labour organisation work. • Rejected the use of labour standards for projectionist purposes. • Understanding of dispute settlement procedure. • Work group for conducting a study on transparency in government procurement practices, • Establish a working group to examine the relation between trade and investment. • Organise a meeting with UNCTAD(UN conference on trade development), to help developing countries. • Talks related to TRIMs 1/29/2015 Kartikeya Singh
    141. 141. WTO – 2nd Ministerial Conference • Geneva, 18th May, 1998 (132 countries) – Setting up of a mechanism to ensure full and faithful implementation of existing multilateral agreements. – Rejection of projectionist measures and accepting for open and transparent rule- based trading system. 1/29/2015 Kartikeya Singh
    142. 142. WTO – 3rd Ministerial Conference • Seattle, 3rd December, 1999, (135 countries). – This meeting was a failure. – Dispute erupted on transparency and imposition of the views of the rich countries. – Major contention was of exploitation. – Protestors called it a “wrong trade organisation”. – Reason for the failure:- • American reluctance on inclusion of labour standards • European Union was reluctant to liberalise agriculture. 1/29/2015 Kartikeya Singh
    143. 143. WTO – 4th Ministerial Conference • Doha, Qatar, 9-13 November, 2001,(142 countries). • Declaration included : – Reduction in Industrial tariffs – Phasing out of agriculture export subsidies. – Promoting the trade in services – Providing special and differential treatment for developing countries. – Negotiations on setting up a multilateral agreement on transparency in government procurement. – Negotiations to further expedite movement, release and clearance of goods. 1/29/2015 Kartikeya Singh
    144. 144. WTO – 5th Ministerial Conference • Cancun, Mexico, 10 to 14 September 2003, – TRIPS and public health – Geographical indications in general – Geographical indications: the multilateral register for wines and spirits – Geographical indications: extending the “higher level of protection” beyond wines and spirits – Reviews of TRIPS provisions. – Non-violation complaints. – Technology transfer 1/29/2015 Kartikeya Singh
    145. 145. WTO – 6th Ministerial Conference • Hong Kong on December – 13-18, 2005. 1/29/2015 Kartikeya Singh
    146. 146. WTO and the India. • A growth Story…. • Please see the text box….. 1/29/2015 Kartikeya Singh
    147. 147. WTO and India • Favorable Impact :- a) Increase in export earnings • Growth in merchandise exports. • Growth in Service exports. b) Agricultural Export c) Textile and clothing d) Foreign Direct Investment e) Multilateral rule and discipline. 1/29/2015 Kartikeya Singh
    148. 148. WTO and India • Unfavorable Impact :- I. TRIPS  Pharma companies  Agricultural output.  Micro ornanism II. TRIMS III. GATS. IV. Trade and Non-Tariff Barrier V. LDC Exports.. 1/29/2015 Kartikeya Singh
    149. 149. WTO and Anti Dumping Measures. • Dumping :- The sale of goods abroad at a price which is lower than the selling price of same goods at the same time in the same circumstances at home, taking account of difference in transport costs. • Dumping means selling the product at below the on going market price and or at the price below the cost of production.1/29/2015 Kartikeya Singh
    150. 150. Impact of Globalisation • See the text box…. 1/29/2015 Kartikeya Singh
    151. 151. WTO members.. • List of WTO Members(see the text box). 1/29/2015 Kartikeya Singh
    152. 152. List of developing countries 1. Afghanistan 2. Albania 3. Algeria 4. American Samoa 5. Angola 6. Antigua and Barbuda 7. Argentina 8. Armenia 9. Azerbaijan 10. Bangladesh 11. Belarus 12. Belize 13. Benin 14. Bhutan 15. Bolivia 16. Bosnia-Herzegovina 17. Botswana 18. Brazil 19. Bulgaria 20. Burkina Faso 21. Burundi 22. Cambodia 23. Cameroon 24. Cape Verde 25. Central African Republic 26. Chad 27. Chile 28. China 29. Colombia 30. Comoros 1. Congo, Dem. Rep. 2. Congo, Rep. 3. Costa Rica 4. Cote d'Ivoire 5. Croatia 6. Cuba 7. Djibouti 8. Dominica 9. Dominican Republic 10. Ecuador 11. Egypt 12. El Salvador 13. Eritrea 14. Ethiopia 15. Fiji 16. Gabon 17. Gambia 18. Georgia Republic 19. Ghana 20. Grenada 21. Guatemala 22. Guinea 23. Guinea-Bissau 24. Guyana 25. Haiti 26. Honduras 27. India 28. Indonesia 29. Iran 30. Iraq 1. Jamaica 2. Jordan 3. Kazakhstan 4. Kenya 5. Kiribati 6. Korea, Dem. Rep. 7. Kyrgyzstan 8. Laos 9. Latvia 10. Lebanon 11. Lesotho 12. Liberia 13. Libya 14. Lithuania 15. Macedonia 16. Madagascar 17. Malawi 18. Malaysia 19. Maldives 20. Mali 21. Marshall Islands 22. Mauritania 23. Mauritius 24. Mayotte 25. Mexico 26. Micronesia 27. Moldova 28. Mongolia 29. Montenegro 30. Morocco 1. Mozambique 2. Myanmar 3. Namibia 4. Nepal 5. Nicaragua 6. Niger 7. Nigeria 8. Pakistan 9. Palau 10. Panama 11. Papua New Guinea 12. Paraguay 13. Peru 14. Philippines 15. Poland 16. Romania 17. Russia 18. Rwanda 19. Saint Kitts and Nevis 20. Saint Lucia 21. Saint Vincent 22. Samoa 23. Sao Tome and Principe 24. Senegal 25. Serbia 26. Seychelles 27. Sierra Leone 28. Solomon Islands 29. Somalia 30. South Africa 31. Sri-Lanka 32. Sudan 33. Suriname 34. Swaziland 35. Syria 36. Tajikistan 37. Tanzania 38. Thailand 39. Timor 40. Togo 41. Tonga 42. Trinidad and Tobago 43. Tunisia 44. Turkey 45. Turkmenistan 46. Tuvalu 47. Uganda 48. Ukraine 49. Uruguay 50. Uzbekistan 51. Vanuatu 52. Venezuela 53. Vietnam 54. Yemen 55. Zambia 56. Zimbabwe 1/29/2015 Kartikeya Singh
    153. 153. Generalized System of Preferences • The Generalized System of Preferences, or GSP, is a formal system of exemption from the more general rules of the World Trade Organization (WTO), (formerly, the General Agreement on Tariffs and Trade or GATT). • Specifically, it's a system of exemption from the most favored nation principle (MFN) that obliges WTO member countries to treat the imports of all other WTO member countries no worse than they treat the imports of their "most favored" trading partner. • In essence, MFN requires WTO member countries to treat imports coming from all other WTO member countries equally, that is, by imposing equal tariffs on them, etc. 1/29/2015 Kartikeya Singh 153
    154. 154. h.International commodity agreement • An international commodity agreement is an undertaking by a group of countries to stabilize trade, supplies, and prices of a commodity for the benefit of participating countries. • An agreement usually involves a consensus on quantities traded, prices, and stock management. A number of international commodity agreements serve solely as forums for information exchange, analysis, and policy discussion. • USTR leads United States participation in two commodity trade agreements: – the International Tropical Timber Agreement and – the International Coffee Agreement (ICA). Both agreements establish inter governmental organizations with governing councils . 1/29/2015 Kartikeya Singh 154
    155. 155. •End of Unit IV 1/29/2015 Kartikeya Singh 155
    156. 156. Syllabus of Unit V • Regional Economic Groups – EU, – NAFTA, – ASEAN, – SAFTA and other Regional Economic Groupings. 1/29/2015 Kartikeya Singh 156
    157. 157. The European Union (EU) The World’s Strongest Supranational Organization
    158. 158. What is it? • The European Union (EU) is a family of democratic European countries, committed to working together for peace and prosperity. • It is not a State intended to replace existing states, but it does represent a greater compromise of sovereignty than any other international organization. • The EU is unique; its Member States have set up common institutions to which they delegate some of their sovereignty so that decisions on specific matters of joint interest can be made democratically at European level. • This pooling of sovereignty is also called "European integration"
    159. 159. European Coal and Steel Community • Founded in 1951 (Treaty of Paris) • Purpose was to reduce potential for conflict between the member states by pooling vital resources • Fore-runner of the EEC, EC, and EU
    160. 160. History of the EU • The historical roots of the European Union lie in the Second World War. – Idea of European integration conceived to prevent such killing and destruction from ever happening again – First proposed by the French Foreign Minister Robert Schuman in a speech on May 9, 1950. This date, the "birthday" of what is now the EU, is celebrated annually as Europe Day • Phases of growth – Initially, the European Economic Community (EEC) consisted of just six countries: Belgium, Germany, France, Italy, Luxembourg and the Netherlands (1958) – European Communities (EC) (1967) – Denmark, Ireland and the United Kingdom joined in 1973 – Greece in 1981 – Spain and Portugal in 1986 – European Union (EU) (after 1992) (Maastricht Treaty) – Austria, Finland and Sweden in 1995 – Largest enlargement took place with 10 new countries joining May 9, 2004
    161. 161. Creation of the EU
    162. 162. GROWTH OF THE EU
    163. 163. GROWTH OF THE EU Admission of Romania and Bulgaria 2007 Major debates about Turkey Croatia and Macedonia are new candidates
    164. 164. CORE ? ?
    165. 165. CONFIRMATION OF CORE-DOMAIN MODEL
    166. 166. How does it work? • There are five EU institutions, each playing a specific role: – European Parliament (one of two legislative bodies in the EU; elected by the peoples of the Member States) – Council of the European Union (EU’s highest Legislative Body; has legislative initiative; is made up of representatives appointed by member states according to a population-based allotment) – European Commission (EU’s executive body; one commissioner per country appointed by each government) – Court of Justice (ensures compliance with the EU laws) – Court of Auditors (manages the EU budget) • These are flanked by five other important bodies: – European Economic and Social Committee (expresses the opinions of organized civil society on economic and social issues) – Committee of the Regions (expresses the opinions of regional and local authorities) – European Central Bank (responsible for monetary policy and managing the euro) – European Ombudsman (deals with citizens' complaints about maladministration by any EU institution or body) – European Investment Bank (helps achieve EU objectives by financing investment projects)
    167. 167. The Euro • The Treaty of Rome (1957) – Declared a common market as a European objective – Aim: increase economic prosperity and contribute to "an ever closer union among the peoples of Europe" • The Single European Act (1986) and the Treaty on European Union (1992) built on this – introduced Economic and Monetary Union (EMU) – laid the foundations for a single currency – name “Euro” was selected in 1995 – in January 1999, the exchange rates of the participating currencies were irrevocably set and Euro area Member States began implementing a common monetary policy – in January 2002, 12 States in the EU introduced
    168. 168. The Eurozone • Coins and banknotes 1st used Jan 1, 2002 • Cyprus sheduled to join in 2008 • Slovakia scheduled to join in 2009 • Estonia scheduled to join in 2010 • Sweden is technically obliged to join but the EU has made public that they will not enforce this with regard to Sweden • Britain and Denmark have a “derogation” releasing them from having to join
    169. 169. Impact of the Eurozone • What impact do you think the Eurozone has on cultural diffusion? • What impact do you think the Eurozone has on economic development? • Why are some countries avoiding joining?
    170. 170. A strong currency!
    171. 171. Why have bills different sizes & colors? What values are reflected in these “artifacts” that are not found in American money?
    172. 172. What about Switzerland? • Swiss are traditionally suspicious of other countries • Swiss tradition of neutrality (WWI & WWII) – self-imposed – permanent – armed • In some ways Switzerland is like the US – Nationalistic government not interested in ceding sovereignty – Economic policies are currently designed to protect local industries (esp. agriculture) from foreign competition • Initial cost of joining EU (progressive financial redistribution policy would cost the Swiss) • Switzerland has embarked on a policy of building bilateral agreements with the EU
    173. 173. Costs of staying out • Export problems – Access to EU markets is not guaranteed • Inflation problems – Europeans nervous about the Euro due to expansion of the EU invest in Swiss Francs, inflating the value of the currency and inhibiting Swiss exports • Capital flight – High construction costs, expensive labor, and skill shortages already make investment in Switzerland unattractive – Several multinational corporations, such as Roche, Sulzer and Alusuisse, have frozen planned investment projects in Switzerland – Large Swiss companies, including Nestle, are shifting activities out of Switzerland in fear of discrimination by other nations – Already four out of five employees of the top 15 Swiss companies work in other countries • Scientific information lag – EU scientific exchange programs accept Swiss citizens only if they fail to fill such exchanges with persons from EU countries • Accumulated bilateral agreements and cooperation may create de-facto incorporation in the EU for Switzerland
    174. 174. The EU in comparative perspective
    175. 175. US dominates entertainment industry in Europe Cultural hegemony?
    176. 176. SUMMARY • The European Union is the strongest supranational organization in the world – shared currency & financial management – legislative, judicial, and executive bodies – regulatory and planning bodies • The EU is growing geographically, and its growth suggests a core-domain model – core and domain are borne out by distribution of income • The EU does not appeal to all Europeans (at least not yet) – small states in particular seem skeptical • Roughly comparable to the US in some ways – population slightly larger than that of the US – somewhat more densely settled than the US – economy is at least as strong as the American economy – other social statistics (e.g. literacy, infant mortality & homicide) are as good or better than the US
    177. 177. NAFTA, the North American Free Trade Agreement, was signed by the United States, Canada, and Mexico. •NAFTA was signed in 1993 and went into effect on January 1, 1994. •While some tariffs were eliminated immediately, others would take anywhere from 5-15 years to be eliminated.
    178. 178. NAFTA was written to create a Free Trade Area in North America. • “Free Trade” means that countries may freely trade goods with each other without having to pay a tariff (tax) on those goods. • In other words, “free trade” means no trade barriers.
    179. 179. The purpose of the agreement is to:  Allow free movement of goods and services among the countries.  Promote competition in the free trade areas.  Protect the property rights of people and businesses in each country.  Be able to resolve problems that arise among the countries.  Encourage cooperation among countries.
    180. 180. Most economists agree that the agreement has been good for the countries involved.
    181. 181. • Free trade increases sales and profits for Mexico, Canada and the U.S.A., thus strengthening their economies. • Lack of tariffs has allowed Mexico to sell its goods in the USA and Canada at lower prices. This makes Mexican products more competitive in these markets and increases Mexico’s profits as it tries to develop its economy. • Free trade is an opportunity for the U.S. to provide financial help to Mexico by making jobs available in factories located there.
    182. 182. a. “NAFTA Members Prepare for Picnic!” b. “NAFTA Members Graciously Share Business Ventures!” c. “NAFTA Members Cover Up Conspiracy!” d. “NAFTA Members Vie For Business!”
    183. 183. • Free trade has caused more U.S. jobs losses than gains, especially for higher-wage jobs. ›Factories, called Maquiladoras, are built on the Mexican border and workers are hired there to make goods at a much lower wage than workers would be paid in the U.S.A.
    184. 184. • Minimum Wage Mexico - $3.40 per day vs. US - $5.15 per hour • Example: Hourly compensation costs for production workers in manufacturing Mexico - $1.21 vs US - $17.70 • (Global Trade Watch, The NAFTA Index, October 1, 1998)
    185. 185. • These factories make many types of products.
    186. 186. • 3 Day Blinds • 20th Century Plastics • Acer Peripherals • Bali Company, Inc. • Bayer Corp./Medsep • BMW • Canon Business Machines • Casio Manufacturing • Chrysler • Daewoo • Eastman Kodak/Verbatim • Eberhard-Faber • Eli Lilly Corporation • Ericsson • Fisher Price • Ford • Foster Grant Corporation • General Electric Company • JVC • GM • Hasbro • Hewlett Packard • Hitachi Home Electronics •Honda •Honeywell, Inc. •Hughes Aircraft •Hyundai Precision America •IBM •Matsushita •Mattel •Maxell Corporation •Mercedes Benz •Mitsubishi Electronics Corp. •Motorola •Nissan •Philips •Pioneer Speakers •Samsonite Corporation •Samsung •Sanyo North America •Sony Electronics •Tiffany •Toshiba •VW •Xerox •Zenith
    187. 187. United States • They can move their factories to Mexico and ship the goods to the US with no tariffs. • They would not have to pay the workers in Mexico as much as in the United States. • They would be able to sell their product for cheaper, but still make a good profit • Many American factory workers lose their jobs because the owners move the factories to Mexico. American factory workers cannot move to Mexico to keep their jobs. • Goods made in Mexico would cost a lot less because labor is cheaper there. Mexico • They would not like foreign owned factories because they would create competition and hurt Mexican owned businesses. • Maquiladoras would provide jobs for Mexicans, but the profit made by maquiladoras would go back into the US economy, not into Mexico’s • It would provide a job in a country where there are not enough jobs • However, the wages are very low and the working conditions are not good • Building factories creates pollution. An environmentalist would want to make sure that Mexico had laws to protect the environment. Good or Bad?
    188. 188. Disadvantages • Some economists argue that NAFTA has been beneficial to business owners and elites in all three countries, but has had negative impacts on farmers in Mexico who saw food prices fall based on cheap imports from U.S. agribusiness and negative impacts on U.S. workers in manufacturing and assembly industries who lost jobs.
    189. 189. Disadvantages  Other economists believe that NAFTA has not been sufficient (or worked fast enough) to produce economic convergence, nor to substantially reduce poverty rates.  In addition, some have suggested that in order to fully benefit from the agreement, Mexico must invest more in education and promote innovation in infrastructure and agriculture.
    190. 190. Disadvantages • Since labor is cheaper in Mexico, many U.S. manufacturing industries moved part of their production from high-cost states to Mexico. • Between 1994 and 2002, the U.S. lost approximately 1.7 million jobs while gaining only 794,000 for a net loss of 879,000 jobs. • These industries included, but were not limited to Agri-businesses.
    191. 191. Disadvantages • NAFTA expanded the maquiladora program, in which U.S.-owned companies employed Mexican workers near the border to cheaply assemble products for export to the U.S. • According to The Continental Social Alliance, these workers have; “no labor rights or health protections, workdays can stretch 12 hours or more, and if you are a woman, you could be forced to take a pregnancy
    192. 192. Advantages • In 2007, Canada and Mexico were, respectively, the first and second largest export markets for U.S. agricultural products. • Exports to the two markets combined were greater than exports to the next six largest markets combined.
    193. 193. Advantages • Agricultural trade increased in both directions(U.S.-Mexico) under NAFTA from $7.3 billion in 1994 to $20.1 billion in 2006. • This was an approximately 300% increase in economic activity: Or 25% year over year growth (12 years).
    194. 194. Advantages • From 1992-2007, the value of U.S. agricultural exports worldwide climbed 65%. • Over that same period, U.S. farm and food exports to Mexico and Canada grew by 156%.
    195. 195. Advantages • NAFTA expanded the maquiladora program, which enabled U.S.-owned companies to employ Mexican workers near the border. • This allowed for more efficient assembly of manufactured goods and in turn, increased exports to the U.S. • This increased Mexico’s labor force by 30%
    196. 196. Association of Southeast Asian Nations
    197. 197. ESTABLISHMENT AND MEMBERSHIP The Association of Southeast Asian Nations or ASEAN was established on 8 August 1967 in Bangkok by the five original Member Countries, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei Darussalam joined on 8 January 1984 Vietnam on 28 July 1995 Laos and Myanmar on 23 July 1997 Cambodia on 30 April 1999 The ASEAN region has a population of about 500 million, A total area of 4.5 million square kilometers A combined gross domestic product of US$737 billion A total trade of US$ 720 billion.
    198. 198. The Establishment of ASEAN Bangkok, 8 August 1967
    199. 199. Goals of ASEAN • To accelerate the economic growth, social progress and cultural development in the region through joint endeavors; and • To promote regional peace and stability through abiding respect for justice and the rule of law.
    200. 200. Political Objective : Promoting Peace & Stability • Through political dialogue and confidence building, no tension has escalated into armed confrontation among ASEAN members since its establishment more than three decades ago.
    201. 201. ECONOMIC AND FUNCTIONAL COOPERATION • When ASEAN was established, trade among the Member Countries was insignificant • Thus, some of the earliest economic cooperation schemes of ASEAN were aimed at addressing this situation • The Framework Agreement on Enhancing Economic Cooperation was adopted at the Fourth ASEAN Summit in Singapore in 1992, which included the launching of a scheme toward an ASEAN Free Trade Area or AFTA.
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×